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The best AI trade of the week turned out to be Dell, and Wall Street sees more gains
Dell Technologies was an unexpectedly major beneficiary of artificial intelligence tailwinds this week. Shares of Dell added 1% on Friday after the computer hardware maker topped Wall Street’s quarterly estimates , with server sales surging 80% as AI momentum shows no signs of a slowdown. The stock is on track for a slight week-to-date gain. Still, that’s enough to outperform the AI darling everyone was paying attention to when the week began: Nvidia. The chipmaker is down more than 8% this week after its fiscal second-quarter results showed a decline in gross margins. As for Dell, its latest quarterly figures have analysts excited for strong gains ahead. “While our ests and [price target] are unchanged post-earnings, we are encouraged by the momentum in DELL’s AI server business & the improvement in [infrastructure solution group] margins, despite a lack of real inflection in traditional infrastructure demand,” wrote Morgan Stanley’s Erik Woodring. He has an overweight rating on Dell and a price target of $176, implying upside of 59%. Following the print, Bank of America’s Wamsi Mohan lifted his price target to $155 from $150 a share, reflecting 40% upside from Thursday’s close. The analyst reiterated his buy rating, citing early-stage AI adoption, margin growth and an impending AI PC upgrade cycle. Those forecasts are above the average analyst price target, which calls for upside of 36%, according to FactSet. DELL YTD mountain Dell shares this year Morgan Stanley and BofA aren’t the only shops bullish on Dell. JPMorgan’s Samik Chatterjee believes that Dell’s ongoing focus on operating expenses and double-digit revenue opportunities within its core business create a “robust earnings growth trajectory” not currently priced into shares. “While DELL is unlikely to be perceived as a primary beneficiary of an AI investment cycle, we expect all server companies to benefit in relation to sale of higher-end servers with [average selling price] and (operating) margin upsides,” he wrote. Chatterjee has an overweight rating on shares. His price target of $160 points to a 44% gain. Despite the strong AI figures, some analysts are keeping to the sidelines. Barclays analyst Tim Long retained an equal weight rating, viewing AI upside as baked into shares. AI tailwinds may also not be enough to offset weaknesses in the PC and traditional server market, he added. “AI orders and revenues have been strong for DELL, but we expect volatility and are also concerned about the target customers,” Long wrote.
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