Dell stock flags bearish divergence pattern as earnings loom: will it rise or fall?

Dell Technologies stock has entered a deep consolidation phase as the momentum from its last earnings beat faded. Over the past three months, price action has stayed contained between the $356 support and $514 resistance levels. That range faces its biggest test when Dell reports earnings, with analysts expecting another strong quarter.

Dell Technology to publish strong earnings

Dell has become one of the biggest beneficiaries of the ongoing artificial intelligence (AI) boom, thanks to its products, which are available in data centers around the world. It makes products like servers and storage devices that it supplies to companies like Google, Microsoft, and Amazon.

The most recent results showed that its revenue jumped by 88% in the first quarter to $43.8 billion. This growth was driven by its infrastructure solutions group (ISG), which made over $29 billion, up by 181% YoY. This surge happened as the AI-optimized servers revenue hit $16.1 billion.

The Client Solutions Group’s revenue soared by 17% to over $14.6 billion. Its commercial client revenue rose to $13 billion. This growth was accompanied by a surge in earnings and shareholder returns. It returned $2.1 billion to shareholders through buybacks. 

Analysts believe that the company’s revenue continued to grow in the second quarter. The average estimate of 21 analysts tracked by Reuters is that its revenue will come in at $44.5 billion, up by 50% YoY. Its EPS is also expected to jump from $2.32 in Q2’25 to $4.92. Chances are that the company will publish stronger-than-expected results as it has always done.

All signs are that Dell’s business is thriving

There are signs that the company’s business is thriving. One of them is that all companies in the AI space published strong financial results. This includes hyperscalers like Microsoft, Google, and Amazon. Also, its top suppliers like Compal Electronics, Foxconn, and Celestica have released strong numbers. 

Companies in the memory space have all published strong numbers in the past few months. Many of them, including Micron and SanDisk, reported strong revenue growth. As such, Dell’s numbers will likely be stronger than expected.

The options market shows that the company has an implied volatility of 110%, higher than the historical volatility of 75%. Its put/call options have dropped below 1, a sign that it has more calls than puts. 

Dell stock has flashed risky patterns

Dell Technology stock chart | Source: TradingView

There are signs, however, that the stock is at risk of a bearish breakout. It has formed what looks like an island reversal pattern, which forms after an asset makes a big gap and then consolidates. This pattern often leads to a bearish reversal. 

At the same time, the Relative Strength Index (RSI) and the MACD indicators have formed a bearish divergence pattern. Therefore, the stock will likely have a bearish breakout, potentially to the key support at $356, the lowest swing in June and July.