Optimism Surrounds Sovereign AI, PC Market Positioning, and Potential for Margin Improvement
Dell Technologies Inc. is seeing a rebound in its stock price this Tuesday, though it still sits around 15% below its peak from late last month when the company released its earnings report.
The earnings report didn’t meet Wall Street’s high expectations, primarily because the surge in demand for artificial intelligence (AI) servers hasn’t yet translated into improved margins.
“AI servers today contribute to margin dollars but dilute margin rates,” explained BofA analyst Wamsi Mohan on Tuesday. The inclusion of expensive graphics processing units in Dell’s materials list is a key reason for this dilution. Despite this, Mohan is among several analysts who remain optimistic about Dell’s future margin improvements.
After recent discussions with Dell’s management, Mohan noted that the company’s margins have significant growth potential due to the contributions from services, consulting, support, and other areas that are recognized over time on the balance sheet.
Additionally, rising power costs may drive customers to upgrade their servers, especially since liquid-cooling technology offers better returns on investment, Mohan noted. He is also optimistic about the opportunities presented by sovereign AI, as countries strive to advance their AI capabilities. “Sovereign AI represents another significant future opportunity,” Mohan said, suggesting it could rival or surpass the market potential of serving tier-2 cloud providers. Overall, he left the management meetings confident in the multi-year AI opportunity.
Dell’s stock has increased by 7.6% in midday trading, following a 5.2% rise on Monday.
Similarly, Morgan Stanley analyst Erik Woodring expressed a positive outlook after meeting with Dell’s management. He now has “greater confidence in the future,” as he mentioned in his Monday report.
Woodring is increasingly convinced that Dell’s “momentum in AI servers and strong competitive positioning, particularly in engineering capabilities, should continue or even accelerate.” He also believes Dell is addressing its “competitive gaps” in the storage segment, which should support growth, and that the company’s client solutions group, including personal computers, “is well positioned to outperform the market.”
“These factors are likely to drive accelerated revenue and earnings growth, and further expand multiples over the next 12 months,” Woodring concluded.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Marketwatch
