AI orders support another year of growth, but customer financing and temporary pricing strength make those earnings less valuable. My forecast allows substantial expansion while expecting investors to pay less for each dollar of profit.
Key points
- $110 billion of FY2028 AI-server sales in my forecast, supported by the order backlog.
- $4.1 billion of first-half FY2027 cash remained after capital spending.
- $508.25 a share is my twelve-month target; initiate Sell.
The call
The market is too optimistic about durable profitability. At my chosen valuation of 18 times annual earnings, today's price requires FY2028 earnings of $32.28 a share. With my revenue forecast, that requires roughly a 12% operating margin, the profit left after running costs. Alternatively, investors must maintain a richer valuation.
Growth consumes cash before customers pay ($ billions)Dell September 8, 2026 10-Q; H1 FY27 cash-flow statement. Uses and funding are not additive to profit.
Growth should continue, but cash collection matters more next year. I forecast AI-server revenue rising 49% in FY2028. Other sales grow only 6%, because higher prices rather than more machines drove much of the recent expansion. Customer financing absorbs cash, while management explicitly cautions against repeating every quarterly margin benefit.
Valuation
| Our FY2028 forecast and valuation | Figure |
|---|
| Revenue | $235 billion |
| Operating margin | 10.5% |
| Net income | $18.1 billion |
| Earnings per diluted share | $28.24 |
| Twelve-month earnings multiple | 18 times |
| Twelve-month target | $508.25 a share |
Earnings deduct $1.8 billion of net interest and other expense, apply a 21% tax rate, and use 640 million diluted shares across all stock classes. Eighteen times earnings rewards growth but discounts funding needs and hardware cyclicality; September borrowing costs reinforce that discipline. Our stronger-growth scenario reaches about $708, but weaker demand and margins produce about $324, supporting Sell rather than Strong Sell.
The margin decides the twelve-month share priceOur FY28 scenarios, October 8, 2026; $235B revenue, 640M shares and 18 times GAAP earnings held constant.
Risks
- AI orders could convert faster than expected; watch shipments and new orders together, not backlog alone.
- Storage and cost savings could sustain higher profitability; watch operating margins as pricing-led growth slows.
- Financing could prove safer than feared; watch overdue balances and collections, which currently do not indicate widespread distress.
What would change my mind
By October 2027, two consecutive quarters above a 12% operating margin, with operating cash exceeding net income without faster supplier-payment growth, would overturn my view.
