After last week’s revenue announcements, many tech stocks took a hit, finishing the reporting season on a weaker note.
Dell Technologies was among those affected. The firm reported second-quarter revenue and earnings that surpassed Wall Street expectations but provided a lackluster revenue outlook for the upcoming quarter. As a result, the stock dropped by 8.88% on August 29.
Dell isn’t just your traditional PC seller anymore; it has become a significant player and partner for AI chip producer Nvidia. The company leverages Nvidia’s chips to create AI servers, distributing them to other firms like CoreWeave.
Last year, Dell made headlines by announcing plans for an AI factory in collaboration with Nvidia. In May, they unveiled the development of a supercomputer called Doudna, set to launch in 2026, under the auspices of the U.S. Department of Energy.
“No one builds vast end-to-end systems like Dell does,” remarked Jensen Huang, Nvidia’s CEO, about the partnership.
Dell’s stock experienced a remarkable rise, climbing over 50% in 2024, fueled by high market expectations regarding AI. However, while the overall S&P has increased nearly 10% since the start of the year, Dell’s inventory has only seen a modest 6% growth.
In the second quarter, Dell reported an adjusted earnings per share of $2.32, exceeding the anticipated $2.30, with revenues hitting $29.78 billion, also above the expected $29.17 billion.
The company has increased its full-year revenue forecast to a mid-point of $107 billion, surpassing Wall Street’s predictions of $104.6 billion and $9.38 per share.
Jeff Clarke, Dell’s Chief Operating Officer, stated, “We are focused on delivering services that matter to us. The demand for AI solutions is incredibly strong.”
Nevertheless, the third-quarter guidance projects earnings of $2.45 per share, slightly under analysts’ expectations of $2.55, although the revenue estimate of $27 billion is an improvement over the $26.1 billion forecast.
Looking ahead, the fourth quarter is expected to see significant profit coming from seasonal factors, particularly in the storage sector.
Despite the cautious revenue outlook, several analysts have increased their stock targets for Dell. UBS has raised its price target from $145 to $155 and maintains a buy rating, while acknowledging the potential for a short-term stock decline due to mixed results. Still, they believe the demand for AI solutions is robust enough to support Dell’s inventory.
On the other hand, Bank of America analyst Wamshi Mohan has also revised Dell’s price target upward from $165 to $167, maintaining a purchase rating. Analysts feel confident that Dell’s second-quarter results and guidance for FY25 will enable it to sustain revenue growth in the AI server market.
Raymond James similarly increased their target, adjusting it from $150 to $152 while reiterating an outperform rating. They expressed surprise at the recent dip in stock prices but are hopeful that investors can navigate the current dynamics.
As of August 29, Dell shares closed at $122.15.
