ENTITY: DELL TECHNOLOGIES INC.

The 2030 Report | Macro Intelligence Memo

CONFIDENTIAL - For Institutional Distribution

FROM: The 2030 Report, Enterprise Hardware & Infrastructure Intelligence Unit TO: Institutional Investors, Technology Infrastructure Analysts, & Hardware Industry Specialists RE: Dell Technologies FY2024-2030: Infrastructure Solutions Growth Paradox, PC Business Structural Decline, Custom Silicon Competitive Threats, and Margin Defense Challenges in AI Infrastructure Buildout DATE: June 2030 CLASSIFICATION: Strategic Macro Intelligence

EXECUTIVE SUMMARY

Dell Technologies Inc., the world's largest privately-held technology company and a leading supplier of enterprise computing infrastructure, occupied in June 2030 a paradoxical competitive position: extraordinarily strong near-term growth driven by generational enterprise investment in artificial intelligence infrastructure deployment, combined with structural medium-term vulnerability to hyperscaler custom silicon development and sustained secular decline in legacy personal computer markets.

The FY2024-2030 period represented the most favorable competitive environment in Dell's two-decade post-EMC merger history: Infrastructure Solutions Group (servers, storage, networking) benefited from hyperscaler capital expenditure acceleration (40-50% YoY growth in AI-optimized infrastructure), while the company maintained dominant market share in enterprise compute infrastructure. However, beneath this impressive surface growth lurked three structural challenges that threatened long-term shareholder value creation: (1) hyperscaler transition toward proprietary custom silicon reducing demand for commoditized Dell server platforms; (2) sustained secular decline in personal computer markets offsetting infrastructure growth; and (3) margin compression from competitive intensity and component cost inflation.

Key Intelligence Findings:

• Infrastructure Growth Sustainability Question: ISG revenue grew 30-35% CAGR FY2024-2030 driven by AI infrastructure build-out, yet 40-50% of this growth dependent on hyperscaler spending (Google, Amazon, Meta, Microsoft) that was transitioning toward custom silicon designs reducing future commodity hardware purchases
• Custom Silicon Threat Underappreciated: By FY2030, approximately 35-45% of hyperscaler capital allocation shifted toward proprietary silicon (GPUs, TPUs, custom AI accelerators), creating structural revenue headwind of potentially USD $8-12 billion annually by FY2035 if trends continue
• PC Business Structural Decline: Commercial and consumer PC markets declined 6-8% annually FY2024-2030, with limited recovery prospects despite new AI-enabled form factors (AI PCs), creating drag on company profitability
• Margin Compression Pressures: Infrastructure gross margins declined from 22-24% (FY2024) to 18-20% (FY2030) due to competitive intensity and component cost inflation, requiring aggressive cost management and pricing power

We assess Dell as a high-quality business enjoying exceptional near-term tailwinds from AI infrastructure investment, but facing material medium-term headwinds from custom silicon proliferation and market normalization. Investment implications are highly sensitive to assumptions regarding ISG growth sustainability and hyperscaler capital allocation patterns.

Investment Thesis Rating: BUY NEAR-TERM | HOLD MEDIUM-TERM | Rating: OUTPERFORM (with caveats) | FY2030 Price Target: USD $95-110 | Risk/Reward: 1.2x Positive (near-term), 0.8x Negative (medium-term)

SUMMARY: THE BEAR CASE vs. THE BULL CASE

THE BEAR CASE (Base Case: Custom Silicon Transition, ISG Compression) Hyperscaler transition to custom silicon accelerates; ISG growth moderates. By June 2030: Revenue $102B (+8% growth), gross margin 19%, stock $85, market cap $180B. Custom silicon cannibalization creates long-term headwind.

THE BULL CASE (Aggressive 2025 CEO Action: Custom Silicon Partnership + ISG Margin Defense) Aggressive partnerships with hyperscalers for custom silicon optimization + ISG margin premium positioning + enterprise software expansion: - 2030 revenue: $115B (+15% growth, vs. 8% base) - Gross margin: 21% (vs. 19% base, +200 bps) - Operating margin: 8% (vs. 5% base, +300 bps) - Stock price: $125 (+47% vs. base) - Market cap: $265B (+47%)

Bull case achieves: Partnership with hyperscalers for custom silicon optimization preserves ISG revenue + premium positioning for specialized hardware + software/services expansion.

SECTION 1: INFRASTRUCTURE SOLUTIONS GROUP & AI BUILDOUT DYNAMICS

FY2024-2030 Infrastructure Growth Drivers:

Dell's Infrastructure Solutions Group (ISG), comprising enterprise servers, storage systems, and networking infrastructure, experienced exceptional growth during FY2024-2030 driven by two primary factors:

1. AI Infrastructure Investment Acceleration: Enterprise data centers globally undertook historically unprecedented capital spending on AI inference and training infrastructure. Estimates suggest enterprise/hyperscaler AI infrastructure capex grew from approximately USD $80-100 billion in FY2024 to USD $280-320 billion by FY2030, representing a 30-35% CAGR.

2. Dell Market Share Maintenance: Despite competition from HPE, Lenovo, and specialized emerging vendors, Dell maintained approximately 28-32% share of enterprise server markets throughout FY2024-2030, translating Dell's infrastructure capex growth into 30-35% revenue CAGR in ISG.

ISG revenue trajectory (FY2024-FY2030):

The deceleration in YoY growth (from 33.9% in FY2026 to 17.9% in FY2030) reflected market maturation and increasing custom silicon adoption.

Hyperscaler Spending Concentration & Dependency Risk:

A critical but often overlooked risk factor in Dell's infrastructure growth is the extreme concentration of demand among hyperscaler customers. By FY2030, analysis suggests approximately 35-40% of Dell ISG revenue derived from approximately 10-15 hyperscaler customers (Google, Amazon, Microsoft, Meta, Apple, Tesla, OpenAI, Anthropic, and others). This concentration creates material customer concentration risk: a single large customer (e.g., Google) represents approximately USD $3-5 billion in annual revenue, or 4-6% of Dell's total revenue.

Hyperscaler spending patterns during FY2024-2030 demonstrated two distinct phases:

Phase 1 (FY2024-2026): Accelerated Commodity Hardware Demand Hyperscalers undertook rapid expansion of training and inference infrastructure utilizing Dell's commodity server platforms and storage systems. This phase generated extraordinary growth and expanding gross margins as hyperscalers prioritized rapid deployment over cost optimization.

Phase 2 (FY2027-2030): Custom Silicon Transition By FY2027, hyperscalers had deployed sufficient infrastructure to establish internal custom silicon development programs (Google Tensor Processing Units, Amazon Trainium/Inferentia, Microsoft custom accelerators). As these custom silicon programs matured, hyperscalers began allocating increasing percentages of capital toward proprietary hardware designs that reduced dependency on commodity servers.

SECTION 2: CUSTOM SILICON THREAT & HYPERSCALER VERTICAL INTEGRATION

The Structural Shift Underway:

The transition toward proprietary custom silicon represents one of the most significant structural changes in enterprise computing markets in the past two decades. By FY2030, industry estimates suggest:

• Google: Approximately 60-70% of AI infrastructure capex allocated toward custom TPU designs versus commodity servers
• Amazon: Approximately 50-60% of AI infrastructure capex allocated toward custom Trainium/Inferentia versus commodity infrastructure
• Meta: Approximately 40-50% of infrastructure capex allocated toward custom accelerators versus commodity hardware
• Microsoft: Approximately 30-40% of infrastructure capex allocated toward custom designs versus commodity platforms

This trend reflects several underlying economics: (1) hyperscalers achieve 20-40% cost reductions through custom silicon optimization versus commodity platforms; (2) proprietary designs provide competitive advantages in model training/inference efficiency; and (3) custom silicon amortization over massive scale (billions of GPU-hours annually) creates economic advantages unavailable to smaller enterprises.

Financial Impact Projections (FY2030-2035):

Our base case forecasts suggest that if custom silicon adoption trends continue at current trajectory, Dell's ISG revenue could experience headwinds of USD $8-12 billion annually by FY2035 (versus baseline growth scenarios). This represents approximately 15-20% of FY2035 projected ISG revenue, or approximately USD $900 million-1.5 billion in annual EBITDA impact (assuming 20-25% incremental margins on ISG).

Scenarios for ISG revenue FY2035:

• Bull Case (Custom Silicon Slower Than Forecast): FY2035 ISG Revenue USD $72-78B (assuming 8-10% CAGR FY2030-2035)
• Base Case (Custom Silicon Adoption as Forecast): FY2035 ISG Revenue USD $62-68B (assuming 5-7% CAGR FY2030-2035)
• Bear Case (Accelerated Custom Silicon Adoption): FY2035 ISG Revenue USD $54-60B (assuming 2-4% CAGR FY2030-2035)

SECTION 3: PERSONAL COMPUTERS BUSINESS & STRUCTURAL DECLINE

Market Context & Secular Headwinds:

Dell's PC business, comprising client computing devices (laptops, desktops, workstations), represents approximately 30-35% of total company revenue (approximately USD $22-26 billion in FY2030). However, the PC market has experienced secular decline since FY2011, when peak shipment volumes were achieved.

PC market dynamics FY2024-2030:

• Global PC Shipments: Declined from approximately 270 million units (FY2024) to approximately 245 million units (FY2030), or roughly 1.8% CAGR decline
• Commercial PC Shipments: Relatively stable (3-4% decline annually) as enterprise refresh cycles continue at predictable rates
• Consumer PC Shipments: Declining 8-12% annually as smartphone and tablet adoption displace laptop/desktop usage, particularly in developing markets

Dell's PC business grew at approximately 2-4% CAGR FY2024-2030, materially outpacing market growth, reflecting market share gains from HP and Lenovo. However, market share gains against a structurally declining category provide only temporary offset to secular headwinds.

Strategic Options & Management Positioning:

Dell management explicitly faced a strategic choice regarding the PC business: (1) harvest the business for cash generation while accepting volume decline; or (2) invest in new form factors and positioning to attempt market growth. By FY2030, management had largely opted for a "selective investment" approach:

1. AI PC Investment: Dell invested in AI-optimized PCs featuring on-device neural processing units and optimized software stacks. FY2030 AI PC sales reached approximately USD $2-3 billion (growth of 60-80% YoY), offering potential renewal cycle opportunity

2. Gaming Segment: Dell's Alienware gaming brand achieved strong performance (growth of 15-20% annually) driven by gaming industry expansion

3. Workstation Focus: Professional workstations targeting creators, engineers, and architects maintained stable demand and premium margins

However, collectively these growth initiatives were insufficient to offset declines in traditional commercial and consumer segments.

Financial Implications:

PC business EBITDA as percentage of company total declined from approximately 28-32% (FY2024) to approximately 18-22% (FY2030). Consequently, PC business decline represents meaningful profitability headwind offsetting ISG growth benefits.

SECTION 4: MARGIN ARCHITECTURE & COST STRUCTURE CHALLENGES

Gross Margin Compression Dynamics:

Infrastructure gross margins declined from 23.8% (FY2024) to 18.2% (FY2030), a 560 basis point compression over six years. This margin decline reflected:

1. Component Cost Inflation: Semiconductor and memory component costs inflated 8-12% CAGR during FY2024-2027 due to AI chip demand, creating pricing pressure on Dell's cost of goods sold
2. Competitive Intensity: HPE and emerging competitors (Pure Storage, NetApp for storage; Juniper, Cisco for networking) competed aggressively on pricing, limiting Dell's pricing power
3. Product Mix Shift: Growth in higher-volume, lower-margin AI training infrastructure versus premium, higher-margin enterprise storage solutions compressed blended gross margins

Operating Margin Resilience:

Despite gross margin compression, operating margins remained resilient:

Operating margin resilience derived from: (1) operating leverage in R&D and SG&A as revenue grew; (2) improved supply chain efficiency; and (3) service revenue growth (higher margin) offsetting product margin compression.

Future Margin Outlook:

Our base case forecasts assume infrastructure gross margins stabilize at 16-18% by FY2032 (reflecting continued component cost normalization and competitive normalization). This implies FY2032-2035 operating margins in the 8-10% range versus historical 9-11% range, representing modest profitability pressure.

SECTION 5: CAPITAL ALLOCATION & SHAREHOLDER RETURNS

Historical Capital Allocation (FY2024-2030):

Dell deployed capital as follows:

• Dividends: Approximately USD $4-5 billion annually (yielding 1.2-1.5% on market cap)
• Share Repurchases: Approximately USD $8-10 billion annually (reflecting strong free cash flow generation)
• Debt Reduction: Approximately USD $2-3 billion annually (reducing legacy debt burden)
• Strategic M&A: Limited (approximately USD $500M-1B annually)

This capital allocation reflected management confidence in cash generation while maintaining shareholder returns.

Shareholder Return Outcomes (FY2024-2030):

Dell delivered total shareholder returns of approximately 18-22% CAGR FY2024-2030, driven by: - Dividend yield: approximately 1.2-1.4% annually - Share price appreciation: approximately 16-21% CAGR - Valuation multiple expansion: P/E multiple expanded from 12.5x (FY2024) to 15.8x (FY2030) reflecting perceived quality improvement

This return performance outpaced technology sector indices, reflecting market appreciation for infrastructure exposure.

SECTION 6: STRATEGIC RISKS & DOWNSIDE SCENARIOS

Custom Silicon Acceleration Risk (20% Probability):

Downside scenario where hyperscalers accelerate custom silicon adoption faster than base case assumptions, driven by: (1) superior cost economics; (2) competitive differentiation benefits; (3) control of critical technology stack. This scenario implies FY2035 ISG revenue of USD $54-60B (versus base case USD $62-68B).

PC Market Continued Deterioration (15% Probability):

Scenario where PC market experiences continued secular decline accelerating to 4-5% annually due to: (1) increased tablet/mobile penetration; (2) cloud computing desktop replacement adoption; (3) AI PC adoption insufficient to offset device count decline. This scenario implies FY2035 PC revenues of USD $18-22B (versus base case USD $24-28B).

Margin Compression Acceleration (25% Probability):

Scenario where competitive intensity intensifies, custom silicon customers demand aggressive pricing, and component costs remain elevated. This scenario implies FY2035 infrastructure gross margins of 14-16% (versus base case 16-18%) and operating margins of 6-8% (versus base case 8-10%).

SECTION 7: STRATEGIC RECOMMENDATIONS & FORWARD POSITIONING

Custom Silicon Partnership Strategy:

Rather than competing against hyperscaler custom silicon development, Dell should position as a preferred partner for custom silicon implementation, achieving: - Preferred integration partnerships with hyperscalers' custom chip designs - Expanded storage and networking services (higher margin, less vulnerable to custom silicon) - Consulting and professional services revenue from AI infrastructure architecture

This positioning could offset 50-75% of custom silicon-related revenue headwinds.

Storage & Networking Expansion:

Storage and networking represent higher-margin businesses less vulnerable to commoditization. Dell should prioritize expansion in: - All-flash storage solutions - Disaggregated networking - Software-defined infrastructure services

PC Business Rationalization:

Accept PC market decline and optimize profitability rather than pursue growth. Focus on: - Premium, higher-margin segments (AI PCs, gaming, workstations) - Services and subscriptions (software, services, support) - Managed device services for enterprise customers

CONCLUSION

Dell Technologies represents a high-quality business enjoying exceptional near-term tailwinds from AI infrastructure investment, but facing material medium-term challenges from hyperscaler custom silicon adoption and secular PC market decline. The investment case hinges on management's ability to transition from commodity infrastructure supplier toward higher-value-add services and partnerships.

For institutional investors, Dell offers compelling near-term exposure to AI infrastructure buildout with 15-20% CAGR growth potential through FY2032. However, medium-term positioning requires strategic repositioning toward custom silicon partnership and higher-margin services.

Investment Rating: OUTPERFORM (near-term) / HOLD (medium-term) | Price Target: USD $95-110 | Risk/Reward: 1.2x Positive (near-term)

The 2030 Report — Macro Intelligence Unit Prepared: June 2030 | Distribution: Institutional Investors Only

REFERENCES & DATA SOURCES

1. Dell Technologies 10-K Annual Report, FY2029 (SEC Filing)
2. Bloomberg Intelligence, "Enterprise IT Infrastructure: AI Servers and GPU Acceleration," Q2 2030
3. McKinsey Global Institute, "IT Infrastructure Economics: On-Premise vs. Cloud Tradeoffs," 2029
4. Gartner, "Magic Quadrant for x86 Server Hardware and Vendors," 2030
5. IDC, "Worldwide Servers Forecast: AI Accelerators and Edge Computing, 2025-2030," 2029
6. Goldman Sachs Equity Research, "Dell: Enterprise Server Demand and Margin Expansion," April 2030
7. Morgan Stanley, "Enterprise Server Capex: AI Infrastructure Investment Cycle," May 2030
8. Bank of America, "Dell Technologies: Infrastructure Software and Cybersecurity Growth," March 2030
9. Jefferies Equity Research, "Dell: Hyperscaler Concentration Risk and Diversification," June 2030
10. Evercore ISI, "PC Market Recovery: Consumer Upgrade Cycles and Education Demand," April 2030