Dell’s name was frequently mentioned in a recent report that slammed its rival, Super Micro Computer.
Hindenburg Research, an activist short-seller who revealed a short position against Super Micro Computer, said that companies like Tesla and Nvidia are switching from Super Micro to Dell.
“Tesla had been sourcing its servers exclusively from Super Micro…But recent reports in May 2024 and posts by Elon Musk show Dell has now won major deals from Tesla, and Musk’s xAI, eroding Super Micro’s exclusivity,” the firm said.
Related: Short-seller blasts Super Micro stock in latest report
Hindenburg also cited Nvidia CEO Jensen Huang’s endorsement of Dell: “Nobody is better at building end-to-end systems of very large scale for the enterprise than Dell.”
In July, Dell’s founder and CEO, Michael Dell, posted a surprising partnership on X, stating, “We’re building a Dell AI factory with @nvidia to power @grok for @xai@elonmusk.”
Grok is an AI chatbot developed by Elon Musk's xAI. Musk confirmed on X that Dell is responsible for assembling half of the racks for xAI’s supercomputer, with Super Micro as the other partner.
Evercore ISI says Dell is set to gain market share given the recent negative concerns surrounding Supermicro.
"It's critical to think through the competitive landscape when it comes to AI servers," the analyst said on August 28, ahead of Dell’s fiscal 2025 Q2 earnings.
What to expect for Dell’s AI approach and financial performance
In 1984, Michael Dell started Dell Technologies (DELL) while he was a student at the University of Texas. Originally concentrated on selling IBM PC-compatible computers, the company now sees AI as its biggest opportunity, with a surge in demand for AI-focused servers as companies invest in AI.
In May, Dell introduced a series of AI-enabled PCs powered by Qualcomm processors and announced that a new server supporting Nvidia’s (NVDA) latest chips will be available in the second half of 2024.
“AI represents a generational opportunity for productivity, innovation, and growth," said Mr. Dell, “How far and how fast we'll go is no clearer to me now than it was 40 years ago when that 19-year-old kid launched a PC company. But I'm more excited and more confident than ever in the opportunity than I've been at any time in my life.”
Dell posted Q1 earnings on May 30 that beat analysts’ estimates yet disappointed the market, with share price tumbling 17% after the results.
Related: Analyst updates Dell stock price target ahead of earnings
For the quarter ended May 3, the company earned $1.27 per share adjusted, a 3% decline but slightly above the $1.26 projected by analysts. Revenue reached $22.2 billion, up 6%, beating the $21.6 billion forecast.
Sales of Dell's Infrastructure Solutions Group rose 22% to $9.2 billion, reflecting strong demand for AI servers. However, the unit’s operating profits were down 1% from a year ago, “resurfacing concerns that AI servers are being sold at near-zero margins,” said Bernstein’s analyst Toni Sacconaghi, according to CNBC.
Dell forecasts Q2 revenue between $23.5 billion and $24.5 billion, with adjusted EPS of $1.65. The company will report Q2 earnings on the afternoon of August 29.
Analysts rethink Dell stock price target
Citi analyst Asiya Merchant lowered Dell’s price target to $155 from $170 with a buy rating. The analyst says future demand may be weaker but also finds Dell's risk/reward appealing due to its focus on margins and AI growth.
Related: Nvidia earnings top forecast, but Blackwell delay signal hits stock
Evercore ISI said on August 28 that Dell’s AI server revenues are expected to exceed $8 billion in sales this year and will likely surpass $10 billion next year. Earlier this month, the firm lowered Dell's price target to $140 from $165 and kept an outperform rating.
Evercore ISI said it remains positive on Dell and believed that the July quarter and the second half of the year look promising for IT hardware and networking companies “though those levered to networking will continue to face demand headwinds as customers continue to digest prior investments.”
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JPMorgan raised Dell's price target to $160 from $155 and maintained an overweight rating. The analyst also added Dell to the firm's Analyst Focus List as a value pick.
“Shares of Dell have significantly underperformed other artificial intelligence beneficiaries as well as the broader market since its last earnings report, led in part by investor concerns around margin pressures being indicative of elevated levels of competition disrupting the AI server market,” the analyst said, adding that the AI server market "still remains in the early innings."
Related: Veteran fund manager sees world of pain coming for stocks
