Dell's Q2 Earnings: AI-Powered Computing and Market Position in Focus

Analysts revise Dell stock price target ahead of earnings

Dell's name was frequently mentioned in a recent report that slammed its rival, Super Micro Computer. Hindenburg Research, an activist short-seller who revealed a short position against Super Micro Computer, said that companies like Tesla and Nvidia are switching from Super Micro to Dell. "Tesla had been sourcing its servers exclusively from Super Micro...But recent reports in May 2024 and posts by Elon Musk show Dell has now won major deals from Tesla, and Musk's xAI, eroding Super Micro's exclusivity," the firm said. Related: Short-seller blasts Super Micro stock in latest report Hindenburg also cited Nvidia CEO Jensen Huang's endorsement of Dell: "Nobody is better at building end-to-end systems of very large scale for the enterprise than Dell." In July, Dell's founder and CEO, Michael Dell, posted a surprising partnership on X, stating, "We're building a Dell AI factory with @nvidia to power @grok for @xai@elonmusk." Grok is an AI chatbot developed by Elon Musk's xAI. Musk confirmed on X that Dell is responsible for assembling half of the racks for xAI's supercomputer, with Super Micro as the other partner. Evercore ISI says Dell is set to gain market share given the recent negative concerns surrounding Supermicro. "It's critical to think through the competitive landscape when it comes to AI servers," the analyst said on August 28, ahead of Dell's fiscal 2025 Q2 earnings. What to expect for Dell's AI approach and financial performance In 1984, Michael Dell started Dell Technologies (DELL) while he was a student at the University of Texas. Originally concentrated on selling IBM PC-compatible computers, the company now sees AI as its biggest opportunity, with a surge in demand for AI-focused servers as companies invest in AI. In May, Dell introduced a series of AI-enabled PCs powered by Qualcomm processors and announced that a new server supporting Nvidia's (NVDA) latest chips will be available in the second half of 2024. "AI represents a generational opportunity for productivity, innovation, and growth," said Mr. Dell, "How far and how fast we'll go is no clearer to me now than it was 40 years ago when that 19-year-old kid launched a PC company. But I'm more excited and more confident than ever in the opportunity than I've been at any time in my life." Dell posted Q1 earnings on May 30 that beat analysts' estimates yet disappointed the market, with share price tumbling 17% after the results. Related: Analyst updates Dell stock price target ahead of earnings For the quarter ended May 3, the company earned $1.27 per share adjusted, a 3% decline but slightly above the $1.26 projected by analysts. Revenue reached $22.2 billion, up 6%, beating the $21.6 billion forecast. Sales of Dell's Infrastructure Solutions Group rose 22% to $9.2 billion, reflecting strong demand for AI servers. However, the unit's operating profits were down 1% from a year ago, "resurfacing concerns that AI servers are being sold at near-zero margins," said Bernstein's analyst Toni Sacconaghi, according to CNBC. Dell forecasts Q2 revenue between $23.5 billion and $24.5 billion, with adjusted EPS of $1.65. The company will report Q2 earnings on the afternoon of August 29. Analysts rethink Dell stock price target Citi analyst Asiya Merchant lowered Dell's price target to $155 from $170 with a buy rating. The analyst says future demand may be weaker but also finds Dell's risk/reward appealing due to its focus on margins and AI growth. Related: Nvidia earnings top forecast, but Blackwell delay signal hits stock Evercore ISI said on August 28 that Dell's AI server revenues are expected to exceed $8 billion in sales this year and will likely surpass $10 billion next year. Earlier this month, the firm lowered Dell's price target to $140 from $165 and kept an outperform rating. Evercore ISI said it remains positive on Dell and believed that the July quarter and the second half of the year look promising for IT hardware and networking companies "though those levered to networking will continue to face demand headwinds as customers continue to digest prior investments." More Wall Street Analysts: JPMorgan raised Dell's price target to $160 from $155 and maintained an overweight rating. The analyst also added Dell to the firm's Analyst Focus List as a value pick. "Shares of Dell have significantly underperformed other artificial intelligence beneficiaries as well as the broader market since its last earnings report, led in part by investor concerns around margin pressures being indicative of elevated levels of competition disrupting the AI server market," the analyst said, adding that the AI server market "still remains in the early innings." Related: Veteran fund manager sees world of pain coming for stocks

Dell Q2 Earnings Preview: Analyst 'Positively Inclined' On AI-Powered Computing; Margins, Server Demand In Focus - Dell Technologies (NYSE:DELL)

Here's what analysts and investors are watching for in the report. Cloud and artificial intelligence revenue generation and future opportunities could be the key items analysts and investors are watching for in the second-quarter earnings report from Dell Technologies DELL on Thursday after market close. Earnings Estimates: Analysts expect Dell to report second-quarter revenue of $24.14 billion, according to data from Benzinga Pro. The company reported revenue of $22.93 billion in last year's second quarter. Dell has beaten analyst estimates for revenue in eight of the last 10 quarters, including two straight quarters. Analysts expect the company to report second-quarter earnings per share of $1.71, which would be down from $1.74 reported in last year's second quarter. The company has beaten analyst estimates for earnings per share in nine straight quarters. The second-quarter earnings report comes with Dell stock up 46% year-to-date, as shown on the Benzinga Pro chart below. What Analysts are Saying: Dell's second-quarter results could be an opportunity for the company to show progress made on margins, JPMorgan analyst Samik Chatterjee said in a new investor note. The analyst reiterated an Overweight rating and $160 price target ahead of earnings. "With outlooks now even lower after the Super Micro print, we see a set up where investors will be relieved by significant progress made relative to ISG margins, with lower focus on other metrics, like AI server revenue and backlog, relative to prior quarters," Chatterjee said. Chatterjee said investors are concerned that cost cuts and workforce reductions are a sign of weakened demand. "We believe these concerns will be trounced by the strong demand backup for AI servers, as evidenced by revenue guidance from Super Micro." The analyst said cost cuts are part of the company's transformation and could help improve profit margins from its AI server opportunity. "We are more positively inclined toward the AI-driven compute investment cycle, which should benefit branded server companies." Chatterjee said that while Dell isn't a primary beneficiary of the AI investment cycle, server companies will benefit from selling higher-end servers with higher average sale prices. Here are other recent analyst ratings on Dell and their price targets: Bank of America: Maintained buy rating, lowered price target from $180 to $150 Morgan Stanley: Maintained Overweight rating, lowered price target from $155 to $142 Citigroup: Maintained Buy rating, lowered price target from $170 to $155 Wells Fargo: Maintained Overweight rating, lowered price target from $175 to $150 Barclays: Upgraded from Underweight to Equal-Weight, with $97 price target Evercore ISI: Maintained Outperform rating, lowered price target from $165 to $140 Read Also: Delaware Court Upholds $267M Fee For Dell Shareholders: Report Key Items to Watch: Artificial intelligence will likely be top of mind for investors when reading Dell's earnings report. The company will be reporting quarterly financial earnings a day after NVIDIA Corporation, one of the companies that is leading the growth of AI use cases. In its first-quarter financial earnings, Dell made their AI opportunity known. "No company is better positioned than Dell to bring AI to the enterprise," Dell Chief Operating Officer Jeff Clarke said. The first quarter saw AI-optimized server orders growing, with shipments up more than 100% quarter-over-quarter. The backlog of the servers also was up 30% to $3.8 billion in the first quarter. With the report coming after Nvidia, Dell could have a high bar to clear when talking about its AI opportunity once again. While many analysts have been cutting their price targets, CNBC host Jim Cramer called the bottom in the stock in mid-August, following an upgrade from Barclays. "Historically, you want to buy this company after it's been hammered. Regardless, it's just been right to do that, so I agree with Barclays. This stock should be bought right here," Cramer said. Cramer also highlighted the fact that Dell CEO Michael Dell was "singled out" at an Nvidia event as a person to do business with, suggesting that Dell could be a strong contender in the AI sector. DELL Price Action: Dell shares are down 1.4% to $110.22 on Wednesday, versus a 52-week trading range of $53.62 to $179.70. Read Next: Benzinga's 'Stock Whisper' Index: 5 Stocks Investors Secretly Monitor But Don't Talk About Yet Photo: Shutterstock Market News and Data brought to you by Benzinga APIs

Can Dell gain from recent SMCI weakness? Evercore weighs in By Investing.com

Dell may be positioned to capitalize on recent challenges faced by Super Micro Computer (NASDAQ:SMCI), Evecroce ISI analysts suggested in a Wednesday note. With the competitive landscape for AI servers intensifying, Dell Technologies Inc (NYSE:DELL) stands to gain from customers seeking alternative suppliers, especially in the context of ongoing supply chain diversity and service capabilities. Evercore highlights that Dell is uniquely positioned to gain market share in the AI server space, particularly as key customers, such as CoreWeave and various companies associated with Elon Musk's companies, are dual-sourcing their production across both Dell and SMCI. The firm analysts believe that Dell remains "a logical partner for customers who look for better/different supply chain diversity and crucially, a strong services offering through the deployment lifecycle," analysts wrote. Evercore projects Dell's AI server revenues to exceed $8 billion this year, and surpass $10 billion in 2025. The focus for Dell, however, extends beyond just revenue growth; the company is also emphasizing the importance of maintaining acceptable EBIT margins and cross-selling various solutions, including networking, storage, and services, to its customer base. The AI server market itself is experiencing robust growth, reaching approximately $30 billion in 2023, driven by the adoption of accelerator-based servers that utilize parallel processing. Looking ahead, Evercore projects the market to grow at a compound annual growth rate (CAGR) in the mid-to-high teens, potentially reaching over $56 billion by 2027. Growth is expected to be led by tier 1 hyperscalers and tier 2 cloud service providers in the near term, with enterprise AI adoption contributing to the longer-term expansion. Dell's advantage in this competitive market is further bolstered by its comprehensive service offerings, which include engineering support, management, maintenance, and financial services. Analysts also emphasize that "services related to AI-server deployments (co-design, installation, and maintenance, etc.) is a key reason why Dell is winning business in both tier-2 and enterprise customer cohorts." Moreover, as the customer mix shifts from tier-2 cloud service providers to enterprises and corporate customers, Dell's ability to attach services to its hardware offerings is expected to contribute to margin accretion - a strategy seen as a key factor in Dell's continued success in the AI server market. Evercore maintains its "Outperform" rating on Dell, with a target price of $140. Driven by AI demand, the company's shares surged more than 43% this year, outperforming the broader market.