Dell Poised to Benefit From AI Server Strength, Likely PC Refresh Cycle, UBS Says; Stock Soars

Dell Technologies (DELL.US) is expected to benefit from strength in artificial intelligence-optimized servers and a likely refresh cycle in personal computers, UBS Securities said in a note.

Late Thursday, Dell reported an AI server backlog of $2.9 billion at the end of the fiscal year, which UBS said reflected an increase from $1.6 billion at the end of last quarter. The computer maker shipped $800 million of AI-optimized servers, implying AI orders were “strong” at $2.1 billion, UBS analysts David Vogt and Andrew Spinola wrote.

“While the proliferation of AI infrastructure assets is in the early innings, the solid results this quarter particularly after the soft order intake ($100 million) in the final month of last quarter should be well received by the market,” Vogt and Spinola said in the note emailed Friday.

The brokerage raised its price target on Dell’s stock to $113 from $99 to reflect stronger near-term AI revenue growth than previously expected and higher free cash flow. The company’s shares surged 32% on Friday, taking their year-to-date gains to nearly 63%.

The computer maker on Thursday reported a surprise increase in fiscal fourth-quarter earnings as revenue topped Wall Street’s views. Sales in the infrastructure solutions group fell 6% year over year, while the client solutions group, which includes hardware like PCs, declined 12%. “In the near-term, the PC market is still soft and we expect recovery to push into the second half,” Chief Operating Officer Jeff Clarke said in prepared remarks published on the company’s website Thursday.

The UBS analysts said the PC backdrop is “stubbornly uneven,” and while the near-term outlook appears to be tough, the PC market should grow 3% to 4% in 2024. The brokerage increased per-share earnings estimates for fiscal 2025 and 2026 by 6%.

Dell expects fiscal 2025 revenue between $91 billion and $95 billion, up 5% at the midpoint. Analysts polled by Capital IQ currently expect $93.43 billion. The company said it expects infrastructure solutions group sales to grow in the mid-teens driven by AI, while it sees its client solutions group growing by a low single digit for the year.

Dell projected full-year adjusted EPS at $7.50, plus or minus $0.25, reflecting 5% growth at the middle of that range. The Street’s view is $7.51.

“AI strength in servers and a likely refresh cycle in PCs in the second half of 2024 justify a more robust valuation and should drive continued outperformance,” according to UBS.

The company sees first-quarter revenue in the range of $21 billion and $22 billion, up 3% at the midpoint. Non-GAAP EPS is expected to be $1.15, plus or minus $0.10. The Capital IQ-polled consensus is $21.63 billion and $1.21, respectively.

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