The U.S. defense sector is spending heavily on tech in 2026. Congress approved $23 billion for President Trump’s “Golden Dome” missile defense plan early in the year, even without a final blueprint. That shows how fast Washington is pushing money into next-gen military tech, and it is not just about hardware.
Earlier this month, Dell Technologies and Palantir (PLTR) rolled out an on-premise AI system built on Dell’s AI Factory with Nvidia (NVDA), aimed at defense groups, hospitals, and other sectors that cannot risk sending sensitive data to the cloud. These are the customers driving the next phase of AI spending.
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That makes Dell Technologies’ (DELL) latest win stand out. On May 27, a Dell unit landed a five-year, $9.7 billion Pentagon contract under the Microsoft Department of War Enterprise Software Agreement II. Dell Technologies will supply Microsoft 365 and cloud subscriptions across the military through a single agreement. The timing matters, as Dell Technologies' stock has already jumped 207.96% in three months, driven by strong demand for AI servers.
With a $9.7 billion defense deal and a new AI partnership with Palantir, is Dell Technologies just getting started as a serious player in defense and AI infrastructure?
The Numbers Driving Dell Forward
Dell runs two main businesses, selling PCs and building out enterprise tech like servers and storage, with a growing focus on data centers tied to AI demand.
The stock has been on a strong run. Shares are up 309.83% over the past year and 262.27% so far this year.
www.barchart.comIt now trades at a forward price-to-earnings of 25.96 times, slightly in line with the sector’s 26.02 times, which suggests expectations are already high.
Dell Technologies also returns cash to shareholders. The stock yields 0.72%, with an annual dividend of $0.72 and a latest quarterly payout of $0.63 on April 21, 2026. The payout ratio is 21.93%, and the company has increased its dividend for four straight years, alongside share buybacks.
First-quarter FY2027 revenue hit a record $43.8 billion, up 88% year-over-year (YOY). Diluted EPS came in at $5.24, up 282%, while non-GAAP EPS reached $4.86, up 214%. Operating cash flow also climbed to a record $4.1 billion. The Infrastructure Solutions Group drove most of the growth, with revenue jumping 181% to $29.0 billion. Within that, AI-optimized servers brought in $16.1 billion, up 757%, while traditional servers and networking added $8.5 billion, up 92%, and storage contributed $4.3 billion, up 8%.
Operating income for the segment rose 206% to $3.1 billion. On the PC side, the Client Solutions Group generated $14.6 billion in revenue, up 17%, including $13.0 billion from commercial customers, with operating income up 79% to $1.2 billion. Dell Technologies returned $2.1 billion to shareholders during the quarter and expects full-year FY2027 revenue of up to $169.0 billion, with AI server revenue projected to reach about $60 billion.
Pentagon Deal Bolsters Growth Case
Dell Technologies’ $9.7 billion Pentagon contract ties the company directly into a five-year Department of Defense software program built around Microsoft tools and cloud services. Under the deal, Dell Technologies will supply Microsoft 365 and related cloud subscriptions to the U.S. military through a single, centralized agreement. That setup makes it easier for the Pentagon to manage its software needs and puts Dell Technologies right at the center of how those systems are bought and deployed, moving it further beyond just hardware into core enterprise tech delivery.
It also connects with Dell Technologies’ push into secure, on-site AI systems. At its recent event, the company partnered with Palantir to roll out a solution that runs Palantir’s software on Dell infrastructure using Nvidia hardware, all within a customer’s own environment. This is aimed at groups like defense agencies and banks that cannot move sensitive data off-site. In that context, the Pentagon deal fits neatly into Dell Technologies’ growing role in defense tech, cloud software access, and controlled AI systems.
Analysts Weigh the Road Ahead
For the July 2026 quarter, analysts expect Dell Technologies to earn $2.94 per share, up from $2.10 a year ago, a 40% increase. For the full fiscal year ending January 2027, earnings are seen at $12.21 compared to $9.25 previously, showing 32% growth. Estimates for fiscal 2028 rise further to $13.70, pointing to a slower but still solid 12.2% gain.
Analysts have been raising their targets as this outlook improves. Mizuho lifted its price target to $260, citing Dell Technologies’ positioning across AI servers and the broader infrastructure needed to support them. BofA Securities raised its target to $246 from $205, while Evercore ISI moved to $240 from $205, all maintaining bullish ratings tied to Dell’s expanding AI exposure across servers, storage, and even PCs.
Still, the stock has already run far ahead of these estimates. All 25 analysts rate it a consensus “Moderate Buy,” with an average target of $214.91, but with shares trading at $461.61, Dell Technologies is already about 53% above that level.
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www.barchart.comConclusion
Dell’s latest Pentagon win reinforces what the market has already started pricing in. The company is no longer just riding the AI wave, it is becoming embedded in the most secure and high-value layers of it, from defense software delivery to on-premise AI infrastructure. Nevertheless, with the stock already trading well above analyst targets, near-term upside could be more measured as expectations catch up to reality. Still, the direction remains clear. As long as AI demand and government-backed spending continue to accelerate, Dell’s positioning suggests the broader trend for the stock is still tilted higher.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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