Dell stock target raised at Morgan Stanley as 'AI server momentum remains strong'

Investing.com -- Morgan Stanley (NYSE:MS) analysts on Monday (NASDAQ:MNDY) raised their price target for Dell Technologies (NYSE:DELL) from $135 to $154, a move driven by strong momentum in the company’s AI server business.

Analysts stress that Dell’s position in AI infrastructure is strengthening, driven by projected shipments of 48,000 eight-GPU AI servers in fiscal 2026 (CY2025), marking a 23% year-over-year increase.

This momentum is expected to generate around $20.6 billion in Dell’s AI server revenue, up 56% from previous forecasts. AI servers represent a major revenue stream for the company, accounting for nearly 20% of the company’s projected revenue in the fiscal 2026 year (FY26).

“While our 3Q24 CIO Survey showed that DELL is the best-positioned hardware vendor to capture traditional enterprise spend over the next 3 years, our recent AI server checks show that DELL's AI infrastructure momentum is building even faster,” analysts led by Erik W. Woodring said in a note.

This growth is attributed to customer demand, competitive gains, and ongoing purchases from significant clients like Tesla (NASDAQ:TSLA) and CoreWeave. Moreover, Dell could benefit further from recent challenges faced by competitor Super Micro Computer Inc (NASDAQ:SMCI), as SMCI’s customers may turn to Dell, further boosting its AI server outlook.

Morgan Stanley estimates that Dell’s FY26 earnings per share (EPS) will reach $10.50, 12% above consensus estimates, as AI server demand is expected to drive Dell’s performance over the next two years.

In a bull-case scenario, Dell could see up to $40 billion in AI server revenue if it captures a third of SMCI’s business, potentially adding billions in incremental revenue.

“Altogether, while DELL has been a strong outperformer since shares bottomed 3 months ago, we believe DELL's outperformance has further to run thanks to this AI server momentum,” analysts said, which they believe is reflected in their new earnings estimates and the price target.

Although the shift to AI server revenue might impact gross margins slightly, Morgan Stanley anticipates that Dell can maintain operating profitability. This, in their view, could nullify the negative margin impact.

“DELL's ability to scale its AI server business and benefit from layoffs announced this summer will be critical in not only driving incremental EPS but also driving continued stock outperformance,” analysts noted.

The firm expects the company’s AI server operating margins to rise to 7-8% in FY26, compared to 6% the previous year.