Barclays Upgrades Dell Technologies, Citing AI-Driven Growth Potential

Barclays raises Dell rating but continues to remain cautious By Investing.com

Barclays upgraded Dell Technologies (NYSE:DELL) from Underweight to Equal Weight in a note Tuesday, citing a significant reduction in AI-related hype that initially influenced their bearish outlook. According to Barclays, much of the AI-driven speculation has been "washed out of the share price," which reduces the downside risk. Despite the upgrade, Barclays remains cautious about Dell's enterprise server, storage, and PC segments. Barclays expressed concerns about the sustainability of Dell's AI revenues and the impact on margins. Since Dell reported its FQ1 earnings on May 30th, its stock has fallen around 34%, reflecting market concerns over these structural issues, Barclays noted. The bank's analysts also highlighted that Dell's AI orders and revenues have been strong but warned of potential volatility and competitiveness in the market. Barclays says that one area of concern is Dell's customer base, with receivables from low-quality customers rising sharply, from mid-teens to almost 50%. Additionally, the bank estimates that Dell's AI servers have gross margins around 12.5% or lower, which is less profitable compared to other products. Moreover, they pointed out that they have "yet to see any meaningful pull-through from AI into other areas of the business areas" like storage or services. Dell's current valuation trades at approximately 11 times Barclays' CY25 EPS estimate, a premium compared to peers like HPE and HPQ. Barclays believes this higher multiple is justified due to Dell's AI business contribution. However, they remain cautious about the broader market challenges in PCs and traditional servers, which they believe the AI business alone cannot offset. Despite these concerns, the analysts acknowledge that the previous Underweight thesis has been "proved out", leading to the upgraded rating.

Barclays sees Dell Technologies stock gaining momentum with AI-driven growth By Investing.com

The firm recognized the company's valuation at approximately 11 times the projected earnings per share (EPS) for calendar year 2025, which is notably higher than the historical average and above the multiples of peers such as HP Enterprise and HP Inc (NYSE:HPQ), which trade around 9 times their projected earnings. The rationale behind the upgrade is linked to Dell's burgeoning artificial intelligence (AI) business, which Barclays believes justifies the higher multiple. The AI segment is expected to drive the company's revenue growth and maintain its strength throughout the year. Despite this positive outlook for the AI business, Barclays anticipates challenges in the personal computer (PC) and traditional server/storage markets due to the current weak macroeconomic environment. Barclays notes that the AI business alone may not be sufficient to counterbalance the pressures faced in other segments of Dell's operations. However, the firm has moved to an Equalweight rating as its previous Underweight thesis has been realized and the company's trading multiple has realigned closer to its historical levels. The price target of $97.00 reflects Barclays' assessment of Dell's market position and future prospects, taking into account the company's financial performance and industry conditions. Recent insights from InvestingPro provide a deeper look into Dell Technologies Inc's (NYSE:DELL) financial health and market performance. With a market capitalization of $67.39 billion and a P/E ratio that stands at 19.03, Dell's valuation seems to be in line with Barclays' analysis. Moreover, the company's aggressive share buyback strategy and high shareholder yield are notable highlights that complement the Barclays upgrade. Dell's P/E ratio is lower than the industry average when considering near-term earnings growth, which may signal an attractive investment opportunity. InvestingPro data also shows a strong free cash flow yield, indicating the company's ability to generate cash and potentially return value to shareholders. This aligns with the Barclays' positive view on Dell's AI business driving revenue growth. However, it's worth noting that Dell's short-term obligations exceed its liquid assets, which may warrant caution for risk-averse investors. For those interested in exploring further, InvestingPro offers additional insights on Dell Technologies, with 12 more InvestingPro Tips available, providing a comprehensive understanding of the company's financial performance and market position. Overall, the InvestingPro data supports Barclays' upgraded stance on Dell, highlighting the company's potential in a competitive technology landscape while also pointing out areas that may require investor attention.

Dell in spotlight as Barclays upgrades on valuation reset (DELL)

Dell Technologies (NYSE:DELL) was in the spotlight on Tuesday as Barclays upgraded the IT giant after shares fell 34% since it reported fiscal first-quarter results at the end of May. Shares rose 1.8% in premarket trading. "Much of the AI hype that predicated our [Underweight] rating has now been washed out of the share price, and thus we see less downside to the stock," Barclays analyst Tim Long wrote in an investor note. Long raised his rating on Dell to Equal-Weight and kept his $97 price target unchanged. Long added that he has some concerns about the enterprise server and storage businesses, but the company has benefited from artificial intelligence. And while AI servers carry lower gross margins than traditional servers, AI should benefit the company's overall top-line growth, Long said. Analysts are largely bullish on Dell (DELL). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates DELL a STRONG BUY. More on Dell Technologies Dell Vs. SuperMicro: One Is The Better Buy Dell Technologies Inc. (DELL) Corporate Sustainability Investor Call Transcript Corporate Sustainability Investor Call Biggest stock movers today: RUM, DELL, and more Dell, HPE's storage businesses are vital, but they've lost market share: Bernstein