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Dell Technologies stock got a boost on an otherwise rough day for tech shares, thanks to a bullish note from Morgan Stanley.
Analyst Erik Woodring asserts that the company is becoming a play on servers used for generative artificial intelligence applications.
Woodring’s checks find that Dell (ticker: DELL) is “rapidly ramping AI server builds,” although a tight supply of GPUs from
Nvidia
(NVDA) is a “gating factor,” he wrote Tuesday. Nonetheless, he says there’s potential for Dell to add $3 billion to $7 billion in revenue and 10 to 50 cents a share in profits from AI servers in its January 2025 fiscal year, driving results 4% to 5% above consensus estimates.
Woodring maintains his Overweight rating and $56 target price on the stock— slightly below where it is currently trading. But his bull case valuation goes to $84, from $81 based on the potential from AI servers.
Dell shares shot 5.2% higher to $57.40 in recent Tuesday trading. The stock is 43% higher year to date.
His positive stance on Dell so far has been driven by expected improvement in PC demand, the potential for the stock to be included in the
S&P 500
stock index, and accelerated capital return to Dell shareholders.
“But we believe a new angle to our thesis is emerging—centered on Generative AI,” Woodring writes. He reports that supply chain sources say Dell is forecasting 15,000 to 20,000 server builds in calendar 2023, and 20,000 to 25,000 for 2024.
Woodring notes that access to GPUs is a key bottleneck, with lead times for Nvidia H100 chips running 30 to 40 weeks, but he sees a big boost to Dell if the company can convert server orders to revenue.
Write to Eric J. Savitz at [email protected]
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