The best AI deal of the week turns out to be Dell, and Wall Street sees more gains
Dell Technologies was a surprisingly big beneficiary of the artificial intelligence momentum this week. Dell shares rose 1% on Friday after the computer hardware maker beat Wall Street’s quarterly estimates, with server sales soaring 80% as the AI momentum showed no signs of slowing. The stock is on track for a modest gain for the week. But that was enough to outperform the AI everyone was paying attention to as the week began: Nvidia. The chipmaker fell more than 8% this week after its second-quarter financial results showed a decline in gross margins. As for Dell, its latest quarterly numbers have analysts excited about the big gains to come. “While our estimates and [price target] unchanged after earnings, we are encouraged by the momentum in DELL’s AI server business and improvement in [infrastructure solution group] margins, despite no real change in traditional infrastructure demand,” wrote Morgan Stanley’s Erik Woodring. He has an overweight rating on Dell and a price target of $176, implying a 59% upside. After the announcement, Bank of America’s Wamsi Mohan raised his price target to $155 from $150 a share, reflecting a 40% upside from Thursday’s close. The analyst reiterated his buy rating, citing early-stage AI adoption, margin growth, and the upcoming AI PC upgrade cycle. Those forecasts are higher than the average price target of analysts, which expects a 36% upside, according to FactSet. DELL Dell stock YTD this year Morgan Stanley and BofA aren’t the only outlets bullish on Dell. JPMorgan’s Samik Chatterjee credits Dell’s continued focus on operating expenses and double-digit revenue opportunities in its core business generates a “strong earnings growth trajectory” that is not yet priced into the stock. “While DELL is unlikely to be seen as a major beneficiary of the AI investment cycle, we expect all server companies to benefit from the sales of higher-end servers with [average selling price] and (operating) margins,” he wrote. Chatterjee has an overweight rating on the stock. His price target is 160 points for a 44% upside. Despite the strong AI numbers, some analysts remain on the sidelines. Barclays analyst Tim Long maintains an equal weight rating, viewing AI upside as built-in to the stock. He added that AI momentum may also not be enough to offset weakness in the traditional PC and server markets. “AI orders and revenue are strong for DELL, but we expect volatility and are also concerned about target customers,” Long wrote.
