Dell and HPE just posted their strongest AI server quarters yet, sending both stocks soaring — but the surge in demand is colliding with rising component costs and thin server margins. The key question now is whether AI-driven revenue growth can outpace the mounting pressure on profitability.

That tension helps explain why the market reacted so sharply: Dell Technologies jumped 32% on May 29 — its best single trading day ever — after reporting fiscal first-quarter 2027 results, while Hewlett Packard Enterprise rose about 30% after hours on June 2 following its biggest earnings beat since 2018.

For two companies I long dismissed as low-growth box shippers, I was surprised by the magnitude of the upside move.

This raises many questions — the most important of which for investors is this: Does the quality of the growth justify these moves?

My answer in a nutshell is: partly yes. That’s because Dell beat expectations and raised guidance on the strength of 757% demand growth for its AI-enhanced servers, while HPE enjoyed a 40% rise in revenue helped by networking — boosted by its acquisition of Juniper Networks — and AI products.

However, both companies suffer from low margins — made worse by higher chip costs and........

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