Dell Technologies (DELL) was in the spotlight on Friday after the tech giant reported better-than-expected results and guidance, leading to much praise from Wall Street.
The reason? Artificial intelligence.
Looking to the first-quarter of fiscal 2027, Dell anticipates adjusted earnings of $2.90 per share at the midpoint, while sales should be between $34.7B and $35.7B. Included in that is $13B from AI server revenue, which Bank of America said was unexpected.
“While most investors were bracing for a significant cut to the prior telegraphed F27 EPS growth of 15%, Dell went the other way and guided F27 EPS growth of 25%,” Mohan wrote in a note to clients. “While the near term is clearly strong, we are unsure of the demand elasticity created by the swift and significant price actions taken by Dell. We model 2H weaker than 1H (and guide), which could prove to be ultimately conservative (especially given mgmt. track record). [Management] acknowledged the significant headwinds and potential pull forward of demand, however AI demand growth could prove to be an offset (even with a very strong ~100% y/y growth in AI server revs).” Mohan reiterated his Buy rating on Dell and upped his price target to $155 from $135.
Shares jumped more than 12% in premarket trading on Friday.
For the full-year, Dell said its Infrastructure Solutions Group, which houses its AI server business, should see mid-40% sales growth, due in part to 100% growth in AI server revenue. Traditional servers and storage are expected to be up mid-single digits, Dell added.
J.P. Morgan analyst Samik Chatterjee also sang Dell’s praises as he too upped his price target, moving to $165 from $155, after the results.
“Dell’s outlook will serve to highlight to investors the opportunity for stand-out execution to help companies side-step significant cyclical headwinds, with management raising its growth outlook for FY27 earnings to +25% y/y, contrary to broader investor expectations for a reduction of the +15% y/y growth outlook shared by the company previously,” Chatterjee wrote in a note to clients. “Additionally, Dell’s outlook embeds gross margin improvement across core segments, ex-AI, driven by higher margins on newer traditional server platforms as well as improved storage margins from the continued shift to Dell IP, while managing CSG to a balance of profitability and share gains.”
Morgan Stanley analyst Erik Woodring was more tempered in his analysis, as he believes Dell is not out of the woods when it comes to a “once-in-a-generation memory cycle.”
“As we’ve said previously, DELL has a strong track record of execution, an extremely strong AI Server business, and manages the supply chain better than peers,” Woodring wrote in a note to clients. “But our FY27 EPS of $10.97 remains well below management’s $12.90 non-GAAP EPS guidance. Why? Because we struggle to conceptually understand how — excluding AI servers — DELL can significantly increase prices multiple times through the year, drive over 200bps of Y/Y gross margin expansion, and see limited demand elasticity.”
Nonetheless, Woodring, who has an Underweight rating on Dell, did state the company’s AI server demand is “tremendously strong” and even better than he expected. As such, he upped his price target to $110 from $101.
“Within DELL’s AI server backlog are primarily Grace Blackwell orders, while management noted Vera Rubin interest is captured in pipeline,” Woodring added. “Furthermore, DELL expects to hold a mid-single-digit margin rate across these orders, which would equate to $2-2.5B of operating income, and roughly $2.80 of EPS from AI servers alone in FY27. While we are UW-rated DELL due to our concerns around the impact of memory inflation, this is clearly an extremely bright spot for the business into FY27.”