Dell's AI server backlog hits $51.3 billion as Q1 revenue surges to $16 billion, but lower margins on AI hardware threaten overall profitability.

Dell reported AI-optimized server revenue of $16 billion in the first quarter, up from less than $2 billion last year, with a backlog of $51.3 billion and full-year AI server revenue guidance of approximately $60 billion.

The company's infrastructure solutions group now generates over 80% of total operating income, but AI-optimized servers carry mid-single-digit operating margins compared to the segment's average of around 12%, creating structural margin pressure as AI systems become a larger share of sales.

Dell's consolidated gross margin compressed by 220 basis points to 20% last year and fell 330 basis points to 17.8% in Q1 as AI hardware expanded in the sales mix; management is targeting earnings growth of 74% to nearly $18 per share for the full year.