Overview

The growing demand for artificial intelligence servers is expected to drive the shares of Dell Technologies in the long run, according to Morgan Stanley. Analyst Erik Woodring has named Dell as a top pick within the IT hardware space, citing a significant $2 billion server backlog as a potential driver for share prices over multiple quarters.

Positive Outlook

Woodring believes that the signs of stabilizing hardware spending, coupled with the emergence of AI servers as a revenue and profit driver, increased capital return commitments, upcoming S & P inclusion, and strong execution and cost management, make Dell an attractive investment option. This positive sentiment from Morgan Stanley follows Dell’s recent strong quarterly performance, which surpassed Wall Street’s expectations and resulted in a nearly 10% increase in share prices.

Opportunity in Generative AI

Morgan Stanley’s Woodring highlights Dell as the first company within their coverage to directly benefit from the spending cycle around generative AI. Recent checks indicate Dell’s plans to manufacture between 15,000 and 25,000 servers in 2023 and 2024, primarily for software-as-a-service companies. Woodring emphasizes that this opportunity is incremental and does not cannibalize general-purpose server demand. Additionally, with the demand for AI servers surpassing supply and the Gen AI story still in its early stages, Woodring believes AI servers will continue to be a significant growth driver for years to come.

Price Target and Valuation

Woodring has raised the firm’s price target for Dell to $70 per share, representing a potential 24% upside from the previous day’s closing price. Dell shares have already rallied by approximately 40% this year. Morgan Stanley attributes Dell’s upside potential to stabilizing hardware spending, improved cost management and execution, and a premium valuation compared to peers such as HP.

Potential Catalysts

According to Woodring, apart from the AI growth story, Dell could benefit from potential inclusion in the S & P 500 index, which would expand its investor base. Other Wall Street firms, including Evercore ISI and Bernstein, also hold a bullish view on Dell, emphasizing its position as an “AI beneficiary” and a best-in-class operator with long-term growth potential.

Source: WS News Publishers