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The Street

Rob Lenihan

Analysts update Dell stock price targets on Tesla-server win

Michael Dell Tesla Inc. Elon Musk Amit Daryanani Jeff Clarke Dell Technologies Morgan Stanley Nvidia Palantir

Back in 1984, who knew from AI?

Sure, the mathematician Alan Turing published a paper in 1950 entitled “Computing Machinery and Intelligence,” opening the doors to the field that would be called AI.

And two years later a computer scientist named Arthur Samuel developed a program to play checkers, the first to ever learn the game independently.

Then, in 1955, another mathematician, John McCarthy, coined the term “artificial intelligence” in connection with a proposed summer workshop at Dartmouth College.

But, c'mon, this was hardly big news to the general public in 1984. People were listening to Prince singing "When Doves Cry" — the top song of the year — and watching "Dynasty" on TV or "Ghostbusters" and "The Karate Kid" in theaters.

Back then, Apple (AAPL) was just shaking things up with its classic Super Bowl commercial, which was quickly followed by the launch of the Macintosh PC.

Dell 'has just started to touch AI opportunities'

The 3.5-inch floppy disk was introduced that year, while Chuck Hull invented the 3D printer.

And by the way, this was the year that a guy by the name of Mark Zuckerberg was born. He went to found a little social-media operation by the name of Facebook, which is now part of Meta Platforms (META) .

This was also the year that Michael Dell launched Dell Technologies (DELL) while he was a student at the University of Texas at Austin.

That company kept growing and is now finding a place in the artificial-intelligence arena.

"We have just started to touch the AI opportunities ahead of us, including broader adoption of AI by enterprise customers and the projected growth in unstructured data where we are well-positioned with industry-leading storage solutions," Jeff Clarke, Dell's chief of operations, told analysts during the company's fourth-quarter-earnings call in March.

Clarke said the company believes the long-term AI action is on-premises, "where customers can keep their data and intellectual property safe and secure."

"PCs will become even more essential as most day-to-day work with AI will be done on the PC," Clarke said.

Tesla's Elon Musk: a major proponent of AI

Tesla (TSLA) Chief Executive Elon Musk is one of the biggest AI boosters around.

The electric-vehicle company hosts an annual AI Day event, scheduled this year for Sept. 30. AI technology is crucial to the development of autonomous vehicles, which Musk sees as the future for autos.

Speaking at the 27th annual Global Conference organized by the Milken Institute, Musk said that "the percentage of intelligence that is biological grows smaller with each passing month."

"Eventually, the percentage of intelligence that is biological will be less than 1%," he said, according to Euronews. "Biological intelligence can serve as a backstop, as a buffer of intelligence. But in percentage, almost all intelligence will be digital."

Evercore analyst sees a Dell-Tesla connection

The two companies seem to be having a meeting of the minds, according to Evercore ISI analyst Amit Daryanani.

On Thursday Daryanani raised the firm's price target on Dell Technologies to $165 from $140 and affirmed an outperform rating on the shares.

More AI Stocks:

The analyst said he understood that Dell had won a large portion of business for Tesla's AI-server buildout, which he says would be incremental to the company's current $2.9 billion AI backlog.

Asked for comment, a Dell spokesperson said in an email that "we’re in quiet period and will share latest financials, including on our server business, during our Q1 earnings call on May 30."

While the analyst said that the investment firm's impression is that Super Micro Computer (SMCI) has won some of the Tesla AI server business as well, allocations are "heavily skewing" toward Dell, according to Daryanani.

His analysis suggests this presents a roughly $2.5 billion to $3 billion revenue/order opportunity for Dell, potentially in calendar 2024.

Crucially, he said, "Dell has also won a sizable amount of storage attach in addition to AI servers that could ship in conjunction with AI server shipments."

Daryanani said that this should help support a structural lift to Dell’s underlying revenue-growth rate from a range of 3% to 4%, to mid-single-digits percent over the next few years.

Morgan Stanley raised the firm's price target on Dell to $152 from $128 and reiterated an overweight rating on the shares.

Dell remains "the best way to play" building AI server momentum, inflecting storage demand, and an improving PC market, while capital returns and S&P inclusion are "added kickers," the firm contended.

Morgan Stanley, which names Dell as a Top Pick, now forecasts a bit more than $8 a share of earnings in fiscal 2025 and $10.12 in fiscal 2026, which it calls 18% above the analyst consensus.

Back in April, UBS analysts boosted the firm's price target on Dell to $141 from $113 and affirmed their buy rating on the shares

The firm said that global AI related servers should increase 48% and 21% in 2024 and 2025 respectively, acting as a tailwind for Dell's Infrastructure Solution Group / Server business despite sluggish legacy enterprise demand.

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