Dell Technologies (NYSE:DELL) shares jumped more than 10% in pre-market trading on Friday after the IT giant reported second-quarter results that were well above expectations, with Wall Street pointing out the company has a “rich catalyst path,” led by artificial intelligence.
Morgan Stanley analyst Erik Woodring raised his price target to a Street high of $70 after the results, noting Dell (DELL) is now the firm’s top IT hardware pick, citing “several” catalysts, including the October 5 analyst meeting, along with better execution and cost management.
Additionally, Dell is becoming a generative AI winner, with more to come, Woodring pointed out in a research note.
“And with our checks suggesting DELL is aiming to build 15-25k AI servers – or about $5B at the midpoint – in 2023 and 2024, despite very little volumes going to enterprises (more below), we believe the AI servers story is still in its early days, and can remain an upside driver of revenue and EPS for several quarters,” Woodring wrote in an investor note.
“AI is already showing it’s a long-term tailwind, with continued demand growth across our portfolio,” Dell Chief Operating Officer Jeff Clarke said in a statement.
Citi analyst Asiya Merchant also raised the firm’s price target on Dell (DELL) to $70, noting that the company looks to be “favorably positioned” due an improving commercial PC backdrop, as well as signs of stabilization in server and storage demand.
The Commercial client segment accounted for $10.6B in sales during the quarter, the result of demand growth in workstations.
In contrast, HP (HPQ) HP tumbles as Wall Street debates ‘uneven’ recovery, guidance cut its full-year guidance earlier this week due to an “uncertain” recovery in PC volume.
Merchant also noted the company has the potential to generate higher capital returns as free cash flow margins return to normal and there is the potential to be included in the S&P 500, though timing of that is still uncertain.
Raymond James analyst Simon Leopold maintained his outperform rating on Dell (DELL) and bumped his price target to $68, pointing out that upside from the company was “balanced across the segments.”
Dell (DELL) said that 20% of its server orders have come from AI-enabled machines and with the macro environment still challenging – especially amongst large enterprise – Leopold said the results “look even better in this context.”