Dell Technologies Inc. (NYSE:DELL) and Hewlett Packard Enterprise Company (NYSE:HPE) sell the physical systems behind the AI boom. Dell trades near 20 times forward earnings, while HPE is closer to 14 times. That roughly six-turn gap is large enough to change the portfolio decision.
We recently examined why Dell and HPE posted record AI demand in the same week but their stocks moved in opposite directions. The unanswered question is whether Dell’s enormous backlog deserves its premium or HPE’s improving margins make the cheaper stock the better risk-adjusted bet.
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Dell has become the scale leader
Dell Technologies Inc. reported fiscal second-quarter revenue of $47.0 billion, up 58%. AI-server revenue reached $16.4 billion, and management raised its full-year AI-server revenue forecast to $74 billion from $60 billion. Its AI-server backlog reached $95 billion, creating extraordinary revenue visibility.
Dell also raised expected fiscal 2027 revenue to $192 billion and adjusted EPS to $25.50. The problem is cash conversion. Operating cash flow was only $2.2 billion during the quarter even as earnings surged, while inventories expanded as Dell built systems for the backlog. AI servers can carry lower margins than other enterprise products, so Dell needs industrial-scale execution, not merely demand.
HPE offers more margin diversity
Hewlett Packard Enterprise Company reported fiscal third-quarter revenue of $12.2 billion, up 34%. Cloud & AI revenue reached $9.0 billion, server revenue increased 35%, and Cloud & AI operating margin improved to 17% from 7% a year earlier.
HPE’s gross margin of roughly 40% is far above Dell’s companywide gross margin near 21%, partly because the businesses have different mixes. Juniper gives HPE a larger networking opportunity around AI clusters instead of relying primarily on server assembly. The offset is a more complicated integration story and a smaller AI-server footprint.
Professional investors increased exposure to both in Q2. Insider Monkey tracked 77 hedge funds holding Dell, up from 72 in Q1, while HPE jumped to 85 holders from 58. AQR Capital Management cut Dell 18% but retained 879,477 shares. Elliott Management increased its HPE stake 18% to roughly 32.3 million shares.
HPE offers the stronger risk-adjusted setup today. Dell is the cleaner, higher-beta way to capture AI-server demand, but the current valuation asks investors to pay about six extra turns of forward earnings while accepting working-capital and margin risk. HPE’s discount, improving Cloud & AI margin and networking exposure provide more room for execution mistakes. Dell can still outperform if its $95 billion backlog converts quickly into cash.
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