Dell Technologies stock received a significant boost, despite a challenging day for the tech industry, thanks to an optimistic note from Morgan Stanley analyst Erik Woodring. Woodring believes that Dell is on track to become a major player in the growing market for servers used in generative artificial intelligence (AI) applications.
Woodring’s research indicates that Dell is rapidly increasing its AI server builds. However, the limited supply of GPUs from Nvidia poses a challenge to this growth. Nevertheless, Woodring predicts that Dell has the potential to generate an additional $3 billion to $7 billion in revenue and achieve profits of 10 to 50 cents per share from AI servers by its January 2025 fiscal year, surpassing consensus estimates by 4% to 5%.
While Woodring maintains his Overweight rating and $56 target price for Dell’s stock (slightly below the current trading price), he acknowledges that his valuation could reach $84, up from $81, based on the potential of AI server sales.
In response to these positive developments, Dell shares surged by 5.2% to $57.40 during Tuesday’s trading session, bringing the stock’s year-to-date increase to 43%.
Woodring’s optimism regarding Dell has been primarily driven by the anticipated improvement in PC demand, the possibility of the stock being included in the S&P 500 index, and the accelerated capital return to Dell shareholders. However, he also emphasizes a new aspect of his thesis: the rise of generative AI. According to supply chain sources, Dell is projecting 15,000 to 20,000 server builds in 2023 and 20,000 to 25,000 builds in 2024.
One significant challenge Dell faces is the limited availability of GPUs, with lead times for Nvidia H100 chips ranging from 30 to 40 weeks. Woodring believes that if Dell can convert its server orders into revenue, the company will experience a substantial boost.
In conclusion, Dell Technologies is well-positioned to capitalize on the expanding AI server market. Woodring’s research suggests robust growth potential, and with the right execution, Dell could achieve impressive financial results in the coming years.