Dell Technologies Inc. (DELL) on Q3 2024 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Fiscal Year 2024 Third Quarter Financial Results Conference Call for Dell Technologies Inc. I'd like to inform all participants, this call is being recorded at the request of Dell Technologies. This broadcast is the copyrighted property of Dell Technologies Inc. Any rebroadcast of this information in whole or in part without the prior written permission of Dell Technologies is prohibited. Following prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] I'd like to turn the call over to Rob Williams, Head of Investor Relations. Mr. Williams, you may begin. Rob Williams: Thanks, everyone, for joining us. With me today are Jeff Clarke, Yvonne McGill and Tyler Johnson. Our earnings materials are available on our IR website, and I encourage you to review these materials and the presentation, which includes additional content to complement our discussion this afternoon. Guidance will be covered on today's call. During this call, unless otherwise indicated, all references to financial measures refer to non-GAAP financial measures, including non-GAAP gross margin, operating expenses, operating income, net income and diluted earnings per share. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release. Growth percentages refer to year-over-year change unless otherwise specified. Statements made during this call that relate to future results and events are forward-looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and our SEC filings. We assume no obligation to update our forward-looking statements. Now I'll turn it over to Jeff. Jeff Clarke: Thanks, Rob. We delivered Q3 revenue of $22.3 billion, with solid profitability and strong cash flow. Operating income was $2 billion. Diluted EPS was $1.88, and cash flow from operations was $2.2 billion. In ISG, the demand environment for traditional servers improved over the course of the quarter, and demand for AI servers continues to be strong across a wider range of customers. Demand for storage was down as expected. ISG revenue was flat quarter-on-quarter, with sequential growth in servers and networking revenue, driven by AI-optimized servers as we begin to convert more PowerEdge XE9680 backlog into revenue. For the quarter, we shipped over $0.5 billion of AI-optimized servers, including our XE9680, XE9640, XE8640 and the R750 and R760xa servers. Customer demand for these AI servers nearly doubled sequentially, and demand remains well ahead of supply. In CSG, the demand momentum we saw in June, July continued into August, but slowed as the quarter progressed. The result was CSG revenue was down sequentially and short of our expectations. Operationally, we executed well, remaining disciplined on pricing and an increasingly competitive environment. And we controlled our expenses, focusing on profit and cash flow, including outstanding working capital performance. And lastly, we've returned another $1 billion to shareholders via share repurchase and dividends. Yvonne will go into more details on cash flow and capital returns later. AI continues to dominate the technology in business conversation. Customers across the globe are turning their operations upside down to see how they can use generative AI to advance their businesses in meaningful ways. These AI initiatives are being driven at the CEO and Board levels. And as a result, we are at the front of a significant TAM expansion. AI-optimized server mix increased to 33% of total server orders revenue in Q3, driven by strong demand from AI-focused cloud service providers and growing interest from other customer verticals. We drove improved demand margins, increased services attached and incremental unstructured storage attached over the course of the quarter. The XE9680 is the fastest ramping solution in Dell history. And in Q3, we continue to see strong demand and big wins, including customers like CoreWeave, a cloud provider that specializes in GPU accelerated workloads; and Imbue, which is using high-performance computing clusters powered by the XE9680 servers to train foundational models. Our AI-optimized server backlog nearly doubled versus the end of Q2 with a multibillion-dollar sales pipeline, including increasing interest, across all regions. That all said, AI hype is everywhere, and we need to be measured in our expectations. We are still in the early innings with AI as customers continue to work through their AI strategies. Experience over multiple technology cycles tells us that progress won't always be linear, but we are excited about the opportunity in front of us. We believe Dell is uniquely positioned with our broad portfolio to help customers size, characterize and build GenAI solutions that meet their performance, cost and security requirements. Our AI strategy, AI in our products, AI built on our solutions, AI for our business and AI for our ecosystem partners is the foundation for our actions, priorities, roadmaps and partnerships. And in Q3, we continue to build our capabilities. We are collaborating with Meta to make it easy for our customers to deploy Meta’s Llama 2 models on-premises, with Dell AI-optimized portfolio. We are also collaborating with Hugging Face to help users create and fine-tune and implement their own open source GenAI models on Dell infrastructure. And earlier this month, we introduced the ObjectScale XF960, an all-flash scale-out appliance for GenAI and real-time analytics based on our software-defined object storage solution, which can run on Linux and Red Hat OpenShift on PowerEdge servers. Looking forward, the recovering ramp in PC demand we were expecting in Q3 has pushed out, with large enterprises and corporate customers remaining cautious with their spending. The PC install base continues to age, and there are exciting changes coming to the PC next year, including advances in AI-enabled architectures from Intel, AMD and Windows on Arm, which will help drive a PC refresh cycle. We are also seeing the beginning of a traditional server rebound, and historically, storage follows a couple of quarters later. We are leveraging our strengths to extend our leadership positions and turn new opportunities, including multi-cloud, edge and AI into incremental growth. And we are positive on FY '25 and fully expect to return to growth next year given the expected tailwinds to our various businesses, including AI. Technology is everywhere, and Dell is ready. The amount and value of data continues to grow. And as that happens, the opportunity for Dell Technology grows in tandem. We have proven that over 4 decades through wave after wave of innovation. And we have proven our ability to capture the growth as our TAM expands and translate that into results for our stakeholders. Regardless of the economic cycle, expect us to focus on growing and extending our core businesses in the areas with the most attractive profits to deliver innovation for our customers, remain disciplined in our pricing and focus on costs. Now over to Yvonne for the detailed Q3 financials. Yvonne McGill : Thanks, Jeff. We're focused on driving a balance of growth, profitability and cash flow in any demand environment. We delivered revenue of $22.3 billion, down 10% with strong gross margins, lower operating expense and improved working capital management. Gross margin was $5.3 billion and 23.7% of revenue, flat year-over-year. We continue to see increased pricing pressure in Q3 but remain focused on profitable opportunities. And you should expect us to continue to maintain discipline and focus going forward. Operating expense was $3.3 billion or 14.9% of revenue, down 5%, driven by lower SG&A costs and down 7% sequentially as we actively manage our spend. Operating income was $2 billion, down 17% and 8.8% of revenue with the impact of a decline in revenue, partially offset by lower operating expense. Our tax rate was 19.2% year-to-date or 15.4% for the quarter. Net income was $1.4 billion, down 19%, and diluted EPS was $1.88, down 18%. Our recurring revenue in the quarter was $5.6 billion, up 4%, and our remaining performance obligation, or RPO, was $39 billion, flat year-over-year, with growth in deferred revenue offset by a decrease in backlog. Deferred revenue was up primarily due to increases in software and hardware maintenance agreements and VMware resell. ISG revenue was $8.5 billion, down 12% and flat sequentially. Servers and networking revenue was $4.7 billion, up 9% sequentially. We saw server ASPs continue to expand in both AI-optimized and traditional servers, and our AI mix of server demand accelerated again sequentially given customer interest in GenAI. We delivered storage revenue of $3.8 billion, down 13%, with demand growth in data protection and PowerScale. ISG operating income was $1.1 billion or 12.6% of revenue, down 170 basis points, driven by a decline in revenue, partially offset by an increase in gross margin rate. Looking forward, our many #1 positions are proof of our deep enterprise expertise. And with a TAM of $200 billion growing at a 7% CAGR over the next few years, we are confident in our ability to grow the business as the market returns to growth. Our fiscal Q3 CSG revenue was $12.3 billion, down 11%, primarily driven by a decline in units, while ASPs remained flat. Commercial and consumer revenue were $9.8 billion and $2.4 billion, respectively. CSG profitability remained strong in Q3, with operating income up $0.9 billion or 7.5% of revenue. Op inc was down 20 basis points, driven by a decline in revenue, offset by lower operating expense and an increase in gross margin rate as we maintained pricing discipline and benefited from lower input costs. With a TAM of $400 billion growing at a 2% CAGR, we will continue to focus on commercial, the high end of consumer, profitable relative performance and executing our direct attach motion for services, software, peripherals and financing. During the quarter, we saw continued strength in APEX and our Data Center Utility and Flex On Demand offerings and added new multi-cloud offerings, including APEX cloud platform for Azure and Red Hat OpenShift. Our Q3 Dell Financial Services originations were $1.8 billion. DFS ending managed assets reached $13.9 billion, up 1%, while the overall DFS portfolio quality remains strong with credit losses near historically low levels. Turning to our cash flow and balance sheet. Our cash flow from operations was $2.2 billion, primarily driven by working capital improvement and profitability. Working capital benefited from an approximately $200 million sequential decline in inventory, strong collections performance and continued improvement in receivables aging. Our cash conversion cycle improved again sequentially and is now at negative 52 days, a 20-day improvement since the end of last year. We ended the quarter with $9.9 billion in cash and investments, flat sequentially, driven by free cash flow generation, offset by $1 billion in capital returns. Core leverage was 1.6x exiting Q3, flat sequentially. During the quarter, we repurchased 11.2 million shares of stock at an average price of $66.55 and paid a $0.37 per share quarterly dividend. Turning to guidance. Enterprise and large corporate customers continue to be cautious in the current macro environment. Against that backdrop, we expect Q4 revenue to be in the range of $21.5 billion and $22.5 billion, with a midpoint of $22 billion. Sequentially, we expect ISG revenue to be up mid-single digits, driven by sequential growth in traditional servers and seasonal growth in storage. We expect CSG revenue to be down low-single digits sequentially. We're seeing pockets of stability in PC demand, but have yet to see a broader recovery in the PC market. And in our Other business segment, we expect to be down in the low 20s sequentially. Operating income rate should be down marginally versus Q3, driven by a more competitive pricing environment in CSG. And for our tax rate, you should assume roughly 20% plus or minus 100 basis points for Q4 or 19.5% at the midpoint for the full year. We expect our Q4 diluted share count to be between 729 million and 733 million shares, and our diluted EPS should be $1.70, plus or minus $0.10. We're increasing our expectations for the full year diluted earnings per share to $6.63, plus or minus $0.10. Turning to FY '25. It's still early in our planning process. However, I recognize you're thinking about next year. So let me share our current thinking. We're seeing signs of stability and inflection in parts of the portfolio, including traditional and AI-optimized servers. We expect revenue to return to growth next year, above our long-term financial framework. The opportunity is the broader IT spending recovery with large corporate and enterprise customers, particularly in the U.S. We'll continue to focus on profitable growth, but we'll be mindful of the competitive environment and inflationary input costs as we move through the next year. Pricing discipline and cost controls will help mitigate these headwinds. Count on us to continue to execute our unique operational model, focused on cash flow, and returning capital to shareholders. And we look forward to updating our FY '25 expectations in more detail on our Q4 earnings call. In closing, we have strong conviction in the growth of our TAM over the long term with technology trends like AI, multi-cloud and edge in our favor. At the end of the day, our strategy is simple: Leverage our unique operating advantages to extend our #1 leadership position and capture new growth. This strategy, coupled with our P&L leverage and strong cash generation, drives a resilient long-term financial framework and capital allocation plan. We have proven our ability to generate strong cash flow through profitability and working capital efficiency, including $9.9 billion of cash flow from operations over the last 12 months. And at our Analyst Meeting last month, we committed to increasing capital returns to our shareholders. Expect us to continue to invest in innovation, be disciplined in how we manage the business and focus on what we can control, delivering for our customers and our shareholders. We are excited about the future and confident in our ability to create meaningful long-term value for all of our key stakeholders. Now I'll turn it back to Rob to begin Q&A. Rob Williams: Thanks, Yvonne. Let's get to Q&A. We ask that each participant ask 1 question to allow us to get to as many of you as possible. Let's go to the first question. Operator: We will take our first question from Amit Daryanani with Evercore. Amit Daryanani : I guess maybe to go to the AI server demand discussion, Jeff, that you had. I think you essentially said your orders doubled. So does that imply something north of $4 billion right now? And then how do you think that manifests itself into revenues into fiscal '25? And maybe you can touch about how broad this customer base is becoming versus perhaps a hyperscaler, that would be really helpful. Jeff Clarke: Sure. Let me pull that apart on it. So I mentioned our demand nearly doubled quarter-over-quarter. And what was, I thought, very interesting about that is every part of the AI-optimized portfolio grew quarter-over-quarter, and we saw significant growth for enterprise customers. So I think that's important to note is we saw the entire portfolio grow. We saw the number of customers grow, and we saw the number of enterprise customers grow quarter-over-quarter. When I think about the $2 billion that you mentioned, that was a backlog comment that we made in August. And what we talked in August was a $2 billion of backlog. And that included, up until that point in time, the August 1st month of the quarter because that was a real-time update of our backlog $2 billion. We shipped over $0.5 billion of AI-optimized servers during the quarter. So when we think about demand nearly doubling, and I mentioned backlog doubled, we like you to part with $1.6 billion of AI-optimized servers backlog at the fiscal exit of Q3. Equally important, we saw the pipeline in the quarter triple. I'll say that again, the pipeline for AI-optimized servers tripled quarter-over-quarter during Q3. Lead times remain 39 weeks, demand is ahead of supply. We continue to work to improve supply. And we're working now to convert that pipeline into real sales into orders, so we can continue to ship and benefit from this exciting time. As far as next year, Yvonne, I'm sure will talk about this in greater detail, but we're still in the planning process. We think it's a tailwind. We talked about it at each of our last financial engagement. It's a large market opportunity, 18% CAGR over the next 4 years, growing to $120-ish billion. There's nothing that suggests that's not the case. And it's not coming at the cost of our traditional servers. Rob Williams: All right. Thanks, Jeff. Next question? Operator: We will take our next question from Wamsi Mohan with Bank of America. Wamsi Mohan : I appreciate the early look into fiscal '25, given some of the puts and takes that you called out, both on revenues and margins, just wondering when you say it's going to be higher than your long-term range. Is the comment pertinent to overall Dell Tech? Or is it also a comment that we can attribute both to CSG and ISG? Frankly, we're coming off cyclical bottoms in so many of your businesses, it feels as though you should be able to materially outgrow. So any kind of maybe characterization of that would be helpful. And also on the cost side, Yvonne, I think you noted pricing disciplined cost controls, but also some headwinds. So just thinking through that, would you say that there is also upside from a margin perspective or EPS growth rate perspective? Yvonne McGill : Thanks, Wamsi. I'd tell you, we're certainly at the early stages of the planning process. We usually wrap that process in the January time frame. But I recognize everyone's interested in next year. So I wanted to give you a little bit more context there. And we expect to return to growth, as I mentioned on the call, already above our long-term financial framework. And so we're seeing an inflection point in traditional servers in addition to those AI-optimized momentum that we've been talking about. And we expect servers and networking holistically to be a bigger portion of our ISG mix in the next year. If I move to PCs, our growth expectations will be dependent on the timing of the PC refresh cycle. We are also expecting a decline and mentioned it for Q4 also in VMware reseller revenue with no impact to profitability. We're expecting a more competitive environment overall. We started to see that in the third quarter. So we'll expect that to continue, especially in the PC market into the next year. Other things to consider, input costs are expected to be inflationary next year, led by NAND and DRAM. And of course, as we always do, we'll continue to be mindful of our cost structure. But regardless of in the environment that we're operating in, right, we will continue to execute our proven operational model. You can continue to count on us to be financially disciplined, all while driving growth, profitability and cash flow. We're really optimistic about FY '25, and really excited about returning to growth. And look forward to giving you all even more context and update in our Q4 earnings call in February. Rob Williams: Thanks for the question, Wamsi. Next question, operator? Operator: We will take our next question from Toni Sacconaghi with Bernstein. Toni Sacconaghi: Yes. Your tone on the call around the demand environment sounds very, very different than it was 90 days ago, where you talked about growth accelerating and a rebound in spending better than you had thought. And it sounds like the complete opposite this quarter. You were wildly above normal seasonality in Q2. You were below normal seasonality in Q3, and you're guiding below normal seasonality again for Q4. Did you just misgauge demand in Q2? Like was there a pull in from Q3 to Q2? And you just misgauged the characterization of demand 90 days ago? Or like what really happened and changed? And if I could, I just want to clarify the AI situation. So it would be helpful if you could just give an update right now in your backlog relative to 90 days ago, which was $2 billion. And if I think about what you're seeing in terms of the pipeline, it sounds very credible that backlog could be like $5 billion exiting this year. If it's a 9-month lead time, shouldn't we expect like $5 billion to $7 billion in AI server delivery? And if you're saying servers are -- demand is improving for traditional servers, why shouldn't we expect a gargantuan number for servers next year? Jeff Clarke: Well, Toni, that's a few questions. Let me work my way through those. So what happened? You recall in Q2, we talked about the improved demand in June and July for PCs. And that certainly helped us close the quarter, and we benefited from that. And when we were together in August, we had seen that continue in August. In fact, through the month of August, the first month of the quarter, our PC business is up year-over-year. And then things changed. The business started to slow. It slowed in September, it slowed more in October. We saw more cautiousness from our customers. We saw them being more selective, particularly large commercial customers, enterprise customers and particularly in North America. We saw the public sector slowdown, while at the same time, we actually saw stabilization in SP. But the big change was the number of large deals slowed over the course of the quarter as our customers again became more cautious and selective. And as the market slowed, which you've probably seen in some of the output numbers from the OEMs, we saw increased pricing pressure. So the pricing pressure changed in PCs from August to October. Those large deals became more competitive. I think you also saw inventory that was shipped in the June and July period. Now it was caught up, and you saw promotional pricing throughout the quarter. And it was more aggressive as we exited the quarter and we ended the quarter. So that did change the PCs. We did not see or call the slowdown in our guidance. The guidance that Yvonne and I gave a quarter ago was what we saw through August, and we were optimistic that we were seeing a recovery. It's clearly pushed, things have slowed. While at the same time, we now have 2 consecutive quarters of quarter-over-quarter growth of our traditional or data center servers, and we have the tailwind of AI continuing to grow. As I mentioned earlier, the pipeline of AI tripled in the quarter. Demand doubled -- nearly doubled quarter-over-quarter. So those are the tailwinds of the change that we see in the business. The biggest change was PC because storage performed as expected. Backlog, the number I'm going to give you is the Q3 exit backlog was $1.6 billion. Orders nearly doubled, pipeline tripled. Our job is to convert debt. We're working with our field, our customers to convert debt pipeline that grew significantly. The interest in our AI products continues to be strong. On-premise deployment at AI interest continues to be strong. The fact that we now have been working with Meta and Llama 2, bringing that on-prem, Hugging Face in an open source environment to bring those models and tools on-prem, I think continue to reiterate AI is going to follow the data. The data is on-prem, and we believe the pipeline and opportunity continues to build for us. Rob Williams: All right. Thanks for the answer there, and thanks for the question, Toni. I'd like to think that our tone would be transparent and honest, and that's what I hope you hear from us is that we call it like we see it, and we give you the best view that we can give you at that point in time. So appreciate the question, Toni. Operator: We'll take our next question from Erik Woodring with Morgan Stanley. Erik Woodring : Awesome. Jeff, I just want to kind of dig into some of your comments about spending on AI, optimized infrastructure and the impact that might have on traditional hardware spending. Because obviously, there's a lot of money, as you're very clearly showing us, being thrown at AI-related infrastructure. So can you just maybe give us a bit more detail on what gives you confidence that this spending won't cannibalize traditional either general compute spend or overall hardware spending as we look out over the next 12-plus months? What are the signposts that you're looking at that gives you that confidence? Jeff Clarke: Of course, Erik. Let me try. So we believe what we've seen for 2 consecutive quarters in our traditional server business is growth that's grown sequentially from 1 to 2, now 2 to 3. What we saw for the first time this year was the pipeline actually grow in-quarter for traditional servers. That's a very encouraging sign. We saw the adoption of our brand-new 16G server double quarter-over-quarter. We saw the activity with our sales force and our accounts increased. We saw the opportunities in large deals increased towards the end of the quarter. Our conversion improved over the course of the quarter. And I think those signals tell us that this 8-quarter digestion of what was built or bought, I should say, through the course of COVID has now worked its way through the system that data centers need be updated, upgraded additional capacity. Those workloads continue -- need to be said, more data is being created. While at the same time, there's a whole new category of computing, accelerated computing, AI-optimized computing fed by all of the market momentum around generative AI that says that there's a big opportunity in both that we think early signs -- I'm not going to -- I won't use that word that you probably want me to use this recovery, but we have early positive signs that there's a changing in the demand profile of traditional servers. And we're seeing a lot of excitement across our broad portfolio of AI-optimized servers that have us feeling pretty good as Yvonne just mentioned about next year. Rob Williams: Does that get out of your question, Erik? I just want to make sure that's... Erik Woodring : Yes, absolutely. Very clear. Rob Williams: Thanks. Appreciate it, Erik. Next question. Operator: We'll take our next question from Ben Reitzes with Melius Research. Ben Reitzes : I appreciate it. I wanted to ask about PCs with regard to your comments around 2025. What is -- are you expecting that growth to be above model? And what do you think the impact will be of the Windows 10 expiration and some of the new chips coming out that harness AI? If you don't mind touching on that, that would be great. Jeff Clarke: Sure. Let me take a run at it, Ben. It probably is important to set context as we're heading into calendar '24, our fiscal '25 in PCs. We expect the market to close in Q4 being down. It will be 8 quarters of negative growth in the PC industry, the longest I can recollect. And it's ripe for a refresh. Another data point for you to think about. There'll be 300 million PCs turning 4 years old next year. That's typically a tipping point for upgrading in commercial. And most of those are notebooks. As everybody was working remote, the notebook mix went up, 300 million PCs that year, they're aging in time to refresh. And we have the opportunity with new architectures from Intel, AMD and Windows on Arm to really begin to see AI make its way out to the edge to the PC. And it's a pretty exciting time. I've used the moniker, the notion of this is the next great application, the next great use case of the greatest productivity device on the planet, and it's coming real next year. So I think 8 quarters of decline, an aging installed base and installed base of greater than 1.5 billion units, 750 million of them over 4 years, all 300 million more coming next year. That will age to become 4 years old, the time to upgrade. None of those are capable of running the new AI workloads coming out to the edge and the PC, new architectures coming that are exciting and interesting. And we have what you said around Windows. There's another forcing function of an upgrade. So historically, when a new version of Windows is available or 1 is retired, that drives a replacement cycle, and that's an opportunity for us. So we're excited about that, particularly given our bias towards commercial. 80% of our revenue comes from the commercial PCs. I think the opportunity is good for us. And then the other question was around the silicon alternatives. Is that it, if I remember correctly? Ben Reitzes : I think you hit on everything. I just -- the clarification is just PC is above -- or PC is also above model, as well as server and ISG. That's probably the final... Jeff Clarke: Specifically, our internal model would have the PC market growing somewhere in the low single digits, think 3% to 4%, you would expect us to grow to take share. Rob Williams: Thanks, Ben. Next question? Operator: We'll take our next question from Asiya Merchant with Citi. Asiya Merchant : A couple of questions on my end. Just on the AI opportunity that you talked about in the enterprise, maybe if you could share with us the workloads and the use cases that you're now seeing, is this gone beyond the cloud service providers that you talked about that you're interacting with? I think you mentioned CoreWeave and Imbue on the call. But if I recall, there was some commentary as well on enterprises. So are you seeing an opportunity for your AI pipeline growing with the enterprise use cases? If you can share any anecdotes on that? And then on share buybacks, obviously, you kicked that up this quarter? Should we expect this level of share buybacks to continue into fiscal '25? Or given improving cash conversion cycles, improving top line, we should see a further step-up in that run rate? Jeff Clarke: Sure. I'll lead with the AI question. A couple of maybe specific data points to help understand and characterize what we're seeing. Number of buyers up, number of enterprise buyers up significantly. All of the portfolio saw quarter-over-quarter growth. And the reason that's important because not everybody needs a 9680. Smaller models, smaller data sets, perfect setup for our other products, which line itself up with where we're seeing the opportunities in enterprise. So institutions of higher education, financial services, health care and life services and manufacturing is where we're seeing pull for our products. That's data on-prem, that's models, that's doing AI and ML work across the board. That's what we're seeing, and we're pretty excited about that. And the tripling of the pipeline included enterprise customers in enterprise demand. Tyler Johnson : And I'll take the share buyback. Look, I think, as you mentioned, look, we tripled share repurchase this quarter versus last quarter. As a reminder, last year, cash was really kind of running more on the weaker side, and we had pulled back and focused more on dilution management. And then as we've seen cash accelerate this year, it's put us in a good position so that we could be a little bit more opportunistic. We don't typically guide around share repurchase. But I guess the way I would frame it is we're obviously very focused on the 80% plus capital return. If you go back to when we first started our dividend, which would have been FY '23, the beginning of FY '23, we're running at 96% return of capital. So I feel really good about that. And I do think recognizing we don't guide, I think it's fair to say, as we look forward, we'll definitely be repurchasing more than just dilution management. Rob Williams: Thanks, Asiya, appreciate it. Operator: We'll take our next question from Mike Ng with Goldman Sachs. Michael Ng : Just have 2 quick ones on AI. First, on the AI margin profile, you obviously had very strong ISG margins in the quarter despite rising contributions from AI server mix. So could you just talk a little bit about how much of a headwind to that ISG margin rate came from the rising mix of AI servers, if that's the right way to think about it? And then second, I was just wondering if you could talk about the relationship between AI servers and networking and storage for you guys. Should we expect some of that AI sales pipeline that you talked about to eventually include selling Ethernet for AI or Infiniband or more storage in the near term? Yvonne McGill : So let me start with the impact of margin rates. We did see a little bit of dilution, if you will, from the impact of the shipment, as we called out, but really not a material impact right now. We saw nice performance really across the server -- holistic server portfolio. And so that increase that Jeff already talked about in the traditional servers was helpful in that mix. So it does have an impact, but we've talked about it being margin dollar accretive, but margin rate dilutive. And so we saw a little bit of that, but not to a significant extent in our third quarter. But expect as that grows, we will see more of an impact. Again, margin dollar accretive. And so -- and as we have more services attached, as we expand that into the enterprise space, we'll see more and more margin accretion coming from those AI offerings. Jeff Clarke: No, I think that's a great point, Yvonne. The team did a great job improving margins of our AI-optimized servers quarter-over-quarter, selling the value, the design, the performance attributes, it's thermal attributes, its connectivity attributes and then attaching storage and services around it allowed us to see improved margins quarter-over-quarter. And Mike, to your question, is there a relationship between storage and networking with AI? Absolutely. These are typically cluster -- small clusters, large clusters, high bandwidth needed. We see it ultimately deployed out where the data is being created, much of the data that will be created in the future is outside of the data center. Much of that data is unstructured. Much of that opportunity is really a nice -- a really nice tie to what we do with our own structured and object assets. And then networking is the high-speed interconnect fabric. They matter, they matter more, whether it's Infiniband or Ultra Ethernet, those are all exciting new technologies for us. Operator: We will take our next question from Simon Leopold with Raymond James. Simon Leopold : Great. I wanted to see if you could unpack what you see going on trend-wise in storage, particularly given that -- I know you said it came in as expected, but the revenue was a bit light versus Street expectations and it looks like it's still down year-over-year in the next quarter. And where my question is going is to think about the longer-term trend, because I'm wondering, is AI pulling money away from storage? And do you see essentially margins trending better or worse given shifts in input costs and the better margins that some of your peers have called out recently? Just wondering how you're seeing that trend as well. Jeff Clarke: Sure. Maybe a couple of data points, and Yvonne can chime in as well. From us, when you think about margins, since that was the last comment, we saw our storage margins improve quarter-over-quarter and year-over-year. That's exciting. We continue to sell the value of our products and the broad portfolio we have. We do see customers cautious. A large concentration of the storage businesses in very large customers, and they're absolutely being cautious and selective. And that clearly impacts our high-end product portfolio. But what was exciting during the quarter is we saw our data protection and our unstructured categories actually growing on orders basis year-over-year. So when I think about the opportunities around protecting valuable data, when I think about the opportunities of what data is going to be created, again, unstructured largely outside of the data center at the edge, I think it's a great opportunity for us to continue to protect these valuable workloads and the opportunity for us to be where the data is created out at the edge with our vast array of unstructured assets. So I don't think AI pulls away storage dollars. I think what we see is the effect of 8 quarters of server decline has impacted storage. Customers are cautious historically as the server business rebounds and recovers, we think our experience tells us that storage lags it by about a couple of quarters. That's what we're expecting. We see nothing that suggests that's different. And in the meantime, the opportunity around unstructured is immense, and we'll continue to focus on that. Yvonne McGill : And I'd add, Jeff, on that, the margin accretion that you referred to on storage is real, and it's great because it's going to be recognized over time in the P&L, right, with the high services and software attached. So we don't see all that benefit today, but we'll see it going forward. Rob Williams: Next question. Operator: We'll take our next question from Sidney Ho with Deutsche Bank. Sidney Ho : Great. I have a question on AI as well. It's great to see very good momentum in that business. Are there any concerns that some of these orders could be like just double booking, just because supply is tight everywhere that could ease over the course of next year? I assume you have great visibility into the backlog, the $1.6 billion you talk about in terms of timing. But how about the multibillion dollar pipeline? How comfortable are you with that? And also, what I would ask about is that can you clarify what products and maybe services are included in that order number? Is that just AI-optimized service like the XE9680? Or do you include like CTU only service in there? Any professional services or even APEX as a service in there? Jeff Clarke: The last one first. When we talk about our AI backlog and demand, it's not high-performance computing. It's not CPU-based. It's simply the portfolio that is optimized for artificial intelligence to 9680, the 9640, the 8640, the 760 and the 750. That's it. So it's clear it is that portfolio that we built to be optimized for AI. The double booking. It's a very unusual way that the marketplace is working with the role that NVIDIA plays and helping the -- obviously, the supplier or the car they're out helping generate demand. I think there's reasonable fidelity in the demand signal that we see today. Is it possible there's double booking? I can't sit here and tell you that there's not. I don't -- from my seat, I don't see it. When we see the opportunity of -- we are competing with others for the same opportunity, the opportunity is qualified. It's got to be qualified for NVIDIA to give the supply or to suggest the supply will be available. So I think there's a lot of control points in place that suggests there's great fidelity in the demand signal that we're seeing. But I can't sit here and tell you with that 100% certainty that there isn't 1 or 2, but I think it's a really good demand signal. And given where our team is and what we see across the globe in enterprise with CSPs, we know where the opportunities are. I hope that helps, Sidney. Rob Williams: Thanks, Sidney. Next question. Operator: We'll take our next question from Krish Sankar with TD Cowen. Krish Sankar : Just had 1 for you. I'm kind of curious, you spoke about AI PC. What is your definition of an AI PC? And also, how much do you expect the ASP uplift to be for an AI PC? And how much incremental growth could it drive from the current $250 million unit run that you're going through? Jeff Clarke: Our definition of an AI PC is going to be a PC that has the performance capability to run the workload on the PC. Not a cloud service, the capability of running an AI workload in an app that has been AI-optimized and to be able to run it locally. The architectures that are coming all meet that criteria. There's variations in performance, but they're all meeting the threshold that we believe is required to call them PCs that they'll be AI-enabled and AI PCs, if that's a name. And I think we're quite comfortable with that definition. Whether it drives tremendous growth to the TAM is to be seen. What I believe at is -- you don't want to be a PC user that doesn't have an AI-enabled chip in it. You're going to be next to people that have 1, and yours doesn't, and it will perform differently. It won't be able to take advantage of some of the new exciting workloads, whether that's new forms of search, new forms of security, new forms of interacting with your PC itself. The ability to put some form of assistant around you. Those are going to be huge productivity uplift, and I think it's going to drive a refresh cycle. And again, the scale of this business is so large with 1.5 billion-plus units in the installed base, 950 million units sold over the last 3 years. This is a catalyst to increase the -- or reduce the refresh cycle or increase the refresh rate, whatever you prefer. And I think that's an exciting time, but I can't call what that number is. Our estimate for the marketplace is low single-digit growth. I think I mentioned 3% to 4%. That would take the market from roughly [250] to [260] next year. Let's get there. Let's get it growing again after 8 quarters of decline. Rob Williams: Well, said. Next question. Operator: We'll take our next question from Aaron Rakers with Wells Fargo. Aaron Rakers : There's been a lot of questions already answered. But Jeff, I just want to ask you simplistically on the AI narrative. You mentioned 39 weeks of delivery time or lead times. Are you at all surprised that that's not starting to change? Have you seen any indications that lead times have pulled back with some of the China restrictions put in place? And I guess that with that context also, would you expect diversity, i.e., another large GPU supplier to be a factor in unlocking and converting some of that pipeline as we move into next year? Jeff Clarke: A couple of things. The pipeline is NVIDIA pipeline today. It's not an alternative pipeline, it's NVIDIA pipeline. And I wish I could tell you Aaron, that the backlog was less than -- or excuse me, the lead time was less than 39 weeks. I can't today. We are on the phone, working every available channel opportunity, as you might imagine, with our supply chain capabilities, to improve supply, to improve supply availability. We've offered our services. We'll help where we can. I'm hopeful for the day to tell you that supply has improved greatly. Lead times have reduced, and we can work the backlog down faster. That's our job. I don't have those answers today. It's 39 weeks. We're trying to continue to get more supply. That's where we are. As we look forward into calendar year '24, there's clearly alternatives coming. There's work to be done in those alternatives, software stacks have to be taken care of, resolve the opportunities around them. But there's more options coming. Their adoption rate, we'll see. But right now, that multibillion-dollar pipeline that I referenced, the backlog that we've talked about is NVIDIA-based 39-week lead time, we're working our behinds off every day to get more supply. Rob Williams: Next question? Operator: We'll take our next question from Samik Chatterjee with JPMorgan. Samik Chatterjee : I guess sticking on the AI subject, you shipped over $0.5 billion of AI-optimized servers in the quarter. Just curious, with lead times holding where they are, how should we think about the trajectory of sort of what we expect for shipments in the coming quarters? Is it fairly stable in that sort of $0.5 billion range? Or should we expect some level of sort of ramp up if it's supply easing? And then just a quick clarification, Jeff. You've mentioned a few times now, the improvement you're seeing in traditional servers, even as you sort of called out that customers are pulling back spending in most recent months, you've seen some signs of that. Just curious, what's the driver there? Like why what's your insight in terms of gas customers are pulling back? Why is that sort of this green shoot and traditional servers that runs a bit counter to that overall theme? Jeff Clarke: Well, we don't forecast shipments in terms of specific dollars by product line for the next quarter. Our shipments are -- for AI are implied in the guidance that Yvonne gave. I really don't want to break it down into a specific of how many that will ship of AI service. But 39-week lead time, 9 months. Can kind of look at the math and go, maybe that's probably the right sort of ZIP code to be in, but -- we're hand-in-mouth for parts. Traditional servers and why we think there's a green shoot. I think it's -- the comments around -- it's been an 8-quarter digestion period, the longest that I can recollect in the server business. Data centers have aged product in. They worked through what they have bought in the early -- the first half of the COVID era. They now need to add capacity, and we're seeing that in different areas. And to the point now, again, to be slightly repetitive, 2 quarters in a row of sequential growth, a building pipeline, which hasn't happened this year. Improved -- increased activity -- improved conversion makes us still comfortable that something's changed. Again, I'm not using that word recovery, but something's changed. It's an inflection point that Yvonne mentioned earlier, and we're going to continue to obviously feed that inflection and continue to look at the opportunity. Rob Williams: All right. Let's see if we can get one last question in. Operator: We'll now take our final question from David Vogt with UBS. David Vogt : Can you -- Jeff, can you talk to sort of the thought process if AI lead times come in a little bit more next year? What that means for your networking fabric or equipment business? And then ultimately, the pull forward, maybe the pull-through of storage. I might have missed it earlier, but I just wanted to get a sense for how that would sort of impact the rest of the ISG business. And then just quickly on CSG. Can you kind of share with us your thoughts, maybe Yvonne on sort of the margin impact from higher component costs, whether it's DRAM, NAND or however you're thinking about it? Jeff Clarke: Well, clearly, as GPU supply improves, the fabric that is associated with those units will be shipped and aligned to that. So the ability for us in our networking business will benefit from an uplift or an increase in supply. And I think that's encouraging. And as I talked about, storage attach is important. We are certainly working with our sales teams, working with -- to find the opportunities as this data is being created in increasingly greater rates outside of the data center to make sure that we're there. And it's landing on Dell storage. And as it lands on Dell storage, making sure that as AI follows the data, that our AI-optimized portfolio is next to it. I mean, that's the sales motion. A set of professional services around that, a set of services that attach around that. So think of every opportunity of a model training, fine-tuning ultimately, as we get to inference is an opportunity for compute assets, which drags a set of storage assets around that, and it's got to be connected. We kind of look at that as the AI estate, if you will, and that's the opportunity. It's real, and our teams are focused on it. Yvonne McGill : And then on your question around component costs and the potential pressure we put on margin rates, we do run a low inventory model. And so when we have component cost increases, we try to recover them as quickly as we can by raising prices and passing those through into the market. So you'll see us continue with that. It's certainly not the first time that we've had this happen. And so it's an engine that's well tuned within Dell. But we'll have to navigate through that with the competitive environment, and we will. But it usually takes a period of time to recapture that impact of the question. Rob Williams: All right. Thanks, everyone, for joining us. Yes. Thanks, David. We'll see many of you next week at Raymond James and Barclays and also the first week in January at the Consumer Electronics Show. Thank you. Have a good evening. Operator: This concludes today's conference call. We appreciate your participation. You may disconnect at this time.
Morgan Stanley Maintains Bullish Stance on Dell
Morgan Stanley analysts reiterated their Overweight rating on Dell (NYSE:DELL) with a price target of $155 on the stock. Currently, shares are up more than 3% intra-day.
The analysts' confidence in Dell's potential for outperformance is based on several factors: strong competitive positioning in the rapidly expanding AI server market, improving profit margins, and enhanced execution in the storage sector, which should boost estimates and valuation. Dell remains a top pick with a $155 price target and a bullish scenario reaching $200.
The analysts dismissed concerns about AI server margins that surfaced during the April quarter, projecting an upward trend in these margins over time. They asserted that Dell's AI server gross margins are comparable to those of other leading OEMs, with Dell pricing its AI servers about 10% higher than its peers. Notably, 25% of Dell Financial Services (DFS) originations last quarter were AI servers.
Most of Dell's cloud service provider and enterprise AI server deals include high-margin, sticky services that are deferred and amortized over time, with services making up about 10% or less of the total system price. Management highlighted that more AI server services revenue is currently being deferred than amortized, suggesting that as amortization schedules progress, AI server revenue and gross margins should improve.
The analysts also pointed to a favorable shift towards sovereign and enterprise clients, where margins are significantly better, and the increasing scale of Dell's AI server business. With operating expenses down slightly year-over-year and revenue up in the low double digits, they see a path to stronger AI server margins over time, contrary to current consensus expectations.
Dell Technologies Shares Plummet 21% on Gross Margin Contraction
Dell Technologies (NYSE:DELL) shares dropped 21% intra-day today following the release of its Q1 results, which showed a 2.5% decrease in gross margins, driven by a slowdown in demand for its AI servers.
The tech giant reported first-quarter revenue of $22.2 billion, a 6% increase from the same period last year and above the consensus estimate of $21.65 billion.
The company's Infrastructure Solutions Group (ISG) was a highlight, with revenue up 22% year-over-year to $9.2 billion, driven by a record 42% increase in servers and networking revenue, which reached $5.5 billion.
Conversely, the Client Solutions Group (CSG) saw flat year-over-year revenue at $12.0 billion, with a modest 3% rise in commercial client revenue.
Dell's adjusted earnings per share (EPS) for the quarter came in at $1.27, slightly exceeding the analyst estimate of $1.25, but representing a 3% decrease from the previous year.
DELL's Anticipated Quarterly Earnings Report: A Deep Dive into Financials and AI Expansion
- DELL is expected to report an EPS of $1.25 and revenue of $21.67 billion for the first quarter of fiscal 2025.
- The company's strategic focus on AI and its cyclical upturn in the PC and enterprise server markets are key drivers of its anticipated positive performance.
- Financial metrics such as a P/E ratio of 36.88, P/S ratio of 1.34, and EV/Sales ratio of 1.55 reflect investor optimism and the company's market valuation.
DELL, a leading technology company listed on the NYSE, is gearing up for its quarterly earnings report on Thursday, May 30, 2024, after the market closes. With Wall Street setting its sights on an earnings per share (EPS) of $1.25 and a revenue estimate of approximately $21.67 billion for the quarter, investors and analysts alike are keenly awaiting the results. Dell Technologies has been making headlines for its anticipated positive performance in the first quarter of fiscal 2025, driven by the strength of its portfolio and an expanding partner base. This anticipation is further bolstered by the company's strategic focus on artificial intelligence (AI) and its cyclical upturn in the PC and enterprise server markets.
The company's stock has seen an uptick, attributed to the growing interest in AI, a sector where Dell is actively expanding its footprint. This interest comes at a crucial time, just before the earnings report, indicating that investors are optimistic about Dell's involvement in AI and its potential impact on the company's financial performance. Additionally, Dell's Infrastructure Solutions Group (ISG) business is benefiting significantly from the adoption of AI, contributing to the company's growth and making it an attractive investment opportunity despite some concerns regarding stock valuation.
Financial metrics provide a deeper insight into Dell's market position and investor sentiment. With a price-to-earnings (P/E) ratio of approximately 36.88 on a trailing twelve-month (TTM) basis, it's clear that investors are willing to pay a premium for Dell's earnings, reflecting optimism about the company's future profitability. The price-to-sales (P/S) ratio TTM of about 1.34 and an enterprise value-to-sales (EV/Sales) ratio TTM of roughly 1.55 further highlight the value investors place on Dell's sales and overall valuation in relation to its sales.
Moreover, Dell's enterprise value to operating cash flow (EV/OCF) ratio TTM of approximately 15.84 offers insight into the company's valuation in relation to its operating cash flow, indicating how efficiently the company is generating cash from its operations. Despite a debt-to-equity ratio TTM of around -10.81, which may raise eyebrows, it's essential to understand this figure in its proper context. The current ratio TTM of about 0.74 suggests potential challenges in covering short-term liabilities with short-term assets, yet Dell's robust earnings growth and promising future prospects, especially in AI, make it a compelling consideration for investors.
Dell Technologies Receives New Price Target from Loop Capital Markets
- Ananda Baruah of Loop Capital Markets has set a new price target for Dell Technologies at $185, indicating a potential upside of about 15.5%.
- Dell's stock performance has seen a notable uptick, attributed to the company's growing involvement in artificial intelligence, with a recent surge of $6.61 or 4.30%.
- The company's strong market presence and investor confidence are highlighted by its market capitalization of approximately $114.33 billion and a trading volume of around 17.1 million shares on the NYSE.
Ananda Baruah of Loop Capital Markets has recently set a new price target for Dell Technologies (NYSE:DELL) at $185, which is a significant jump from its current trading price of $160.18. This adjustment indicates a strong belief in Dell's potential for growth, suggesting an optimistic future for the company's stock with a potential upside of about 15.5%. Dell Technologies, a major player in the technology sector, is known for its wide range of computing products and services. This new price target comes at a time when Dell is making notable strides in the artificial intelligence (AI) sector, a move that is drawing increased attention from investors.
The timing of this optimistic price target aligns with Dell Technologies' recent stock performance, which has seen a notable uptick. This increase is largely attributed to the growing interest in the company's involvement in artificial intelligence. With the stock price currently at $160.18, Dell has experienced a significant rise of $6.61 or 4.30%. This surge in stock price is particularly impressive, considering the shares have fluctuated between a low of $154.61 and a high of $166.77 throughout the trading day, even reaching a new 52-week high at $166.77.
The company's stock performance is a clear indicator of its strong market presence and investor confidence. With a market capitalization of approximately $114.33 billion and a trading volume of around 17.1 million shares on the NYSE, Dell Technologies is demonstrating its capability to attract substantial investor interest. This is especially relevant as the company approaches a key date, May 30, which is anticipated to bring more insights into Dell's advancements in the AI space.
The positive sentiment surrounding Dell Technologies, as highlighted by StreetInsider, is reflective of the broader market's optimism towards the company's strategic direction, especially in the rapidly evolving field of artificial intelligence. This enthusiasm is not only a testament to Dell's current achievements but also sets a promising tone for its future endeavors in the tech industry. As Dell continues to innovate and expand its AI capabilities, the company is well-positioned to capitalize on the growing demand for advanced technology solutions, potentially leading to further stock price appreciation and solidifying its status as a key player in the global technology landscape.
Dell Technologies (DELL:NYSE) Receives Strong Buy Rating from Zacks Investment Research
Dell Technologies (DELL:NYSE) Spotlighted by Zacks Investment Research
Dell Technologies (DELL:NYSE) has been spotlighted by Zacks Investment Research with an average brokerage recommendation (ABR) of 1.50, signaling a strong buy sentiment from Wall Street analysts. This optimistic outlook is supported by 11 strong buy recommendations and two buy suggestions out of 15 brokerage firms. Such a consensus indicates a bullish perspective on DELL's stock, suggesting that many analysts see the company's shares as undervalued or poised for growth.
Despite this positive sentiment, caution is advised when interpreting these recommendations due to potential biases from brokerage firms. These firms might have their own interests, which could color their advice, not always aligning with the interests of individual or retail investors. This discrepancy underscores the importance of investors doing their own research and considering multiple sources of information before making investment decisions.
Zacks Equity Research offers an alternative to the ABR by emphasizing the value of their proprietary Zacks Rank. This ranking system, unlike the ABR, is based on earnings estimate revisions and has been shown to have a strong correlation with stock price movements. For Dell Technologies, the Zacks Rank is currently a #3 (Hold), which is based on the steady Zacks Consensus Estimate for the current year's earnings at $7.64. This stability in earnings estimates suggests that Dell's stock might not see significant price movement in the near term but is expected to perform in line with the market.
The current market performance of DELL provides a practical context to these analyses. With a recent price of $126.65, experiencing a slight decrease of 2.08%, and a trading range between $126.25 and $129.67, Dell's stock shows volatility within a relatively narrow band. Over the past year, the stock has seen a significant price range from $44.19 to $136.16, indicating substantial growth potential and volatility. With a market capitalization of approximately $90.4 billion and a trading volume of about 2.16 million shares, Dell Technologies represents a significant player in the market, reflecting both its size and the investor interest it commands.
In light of these factors, while the bullish sentiment from Wall Street analysts provides a positive outlook for Dell Technologies, investors are encouraged to look beyond brokerage recommendations. By considering Dell's current market performance and utilizing tools like the Zacks Rank, investors can gain a more nuanced understanding of the stock's potential, balancing analyst optimism with a realistic assessment of market conditions and the company's performance metrics.
Dell Technologies (DELL:NYSE) Earns Strong Buy Recommendation
Dell Technologies (DELL:NYSE) Catches Investors' Eyes with Strong Buy Recommendation
Dell Technologies (DELL:NYSE) has recently caught the eye of investors and analysts alike, earning a Zacks Rank #1, which signifies a Strong Buy recommendation. This prestigious ranking is not just a nod to the company's current performance but a forward-looking indicator of its potential for near-term stock price appreciation. The basis for this optimism lies in the upward revision of earnings estimates, suggesting that Dell's business is on an upward trajectory. Such revisions are crucial as they reflect the collective judgment of analysts on the company's future earnings potential, which in turn, can significantly influence stock prices.
The Zacks Rank system, renowned for its predictive accuracy since 1988, has demonstrated a clear link between earnings estimate revisions and stock performance. For Dell Technologies, the consensus among analysts has led to an upward revision of the earnings per share (EPS) estimate to $7.64 for the fiscal year ending January 2025, which represents a year-over-year growth of 7.2%. This positive adjustment of 8.3% over the past three months in the Zacks Consensus Estimate underscores a robust improvement in Dell's business fundamentals. Such a revision is a strong signal to the market, often leading to increased investor confidence and potentially higher stock prices.
Moreover, Dell's recent performance has been nothing short of impressive, with its stock price currently standing at $121.08, marking a significant rise. This increase is part of a broader trend that has seen the stock surge by 48.8% over the past three months, dramatically outperforming the S&P 500's gain of 8.2% during the same period. This momentum, reflected in Dell's Momentum Score of B, indicates strong market movement and further validates the optimism surrounding the company's stock. The company's market capitalization of about $86.43 billion, coupled with a trading volume of 6,568,529 shares, highlights its significant presence on the NYSE and the high level of investor interest in its shares.
The stock's recent price movement, fluctuating between a low of $115.68 and a high of $121.74, alongside a remarkable recovery from a yearly low of $41.47 to a high of $136.16, illustrates the volatility and the potential for growth that Dell's stock holds. Such performance metrics not only showcase Dell's resilience and ability to navigate market fluctuations but also its potential for sustained growth. This is particularly relevant for investors looking for opportunities in companies with solid fundamentals and strong market momentum.
In conclusion, Dell Technologies' upgrade to a Zacks Rank #1 is a testament to its strong earnings outlook and its potential for continued stock price appreciation. The company's impressive stock performance, backed by significant earnings estimate revisions and a solid business foundation, positions it favorably for future growth. As Dell continues to innovate and expand its market presence, it remains a compelling option for investors seeking to capitalize on its upward trajectory.
Dell Initiated With Buy Rating at Melius
Analysts at Melius started coverage on Dell (NYSE:DELL) with a Buy rating and a price target of $95.00. The analysts’ perspective is based on a valuation of 12 times the projected fiscal 2026 earnings per share. They believe Dell will benefit significantly from the "AI Halo Effect" in most of its product categories.
Despite a substantial 80% increase in shares this year, Dell's stock is currently valued at only 11 times the consensus earnings. This is seen ahead of a potential upgrade cycle in PCs and the growing benefits from Dell's expansion into the AI server market. According to the analysts, Dell's market-leading scale, effective management, and status as a consistent share gainer justify a higher valuation compared to its peers.
