Dell Technologies is gearing up to release its second-quarter earnings report on Thursday after market close, and analysts and investors are keeping a close eye on the company’s performance, particularly in the areas of cloud and artificial intelligence (AI).
Analysts are expecting Dell to report revenue of $24.14 billion for the quarter, representing a significant increase from the $22.93 billion recorded in the same period last year. Dell has consistently exceeded revenue expectations in eight out of the last ten quarters, including the past two. On the earnings per share front, analysts predict $1.71, a slight dip from the $1.74 reported in the second quarter of 2023. Nevertheless, the company has a solid track record of beating earnings per share estimates for nine consecutive quarters.
Dell’s stock has seen a remarkable 46% year-to-date surge, and the upcoming earnings report could provide further insights into the company’s growth trajectory. JPMorgan analyst Samik Chatterjee believes the results could showcase Dell’s progress in improving margins. Chatterjee maintains an Overweight rating and a $160 price target for Dell stock. He emphasizes that investors are looking for signs of progress on ISG (Infrastructure Solutions Group) margins and are less concerned about other metrics, like AI server revenue and backlog, compared to previous quarters.
Chatterjee acknowledges investor concerns regarding cost cuts and workforce reductions as potential indicators of weakened demand. However, he believes these concerns will be overshadowed by the strong demand for AI servers, as evidenced by the revenue guidance provided by Super Micro. Chatterjee highlights that these cost cuts are part of Dell’s transformation strategy and could contribute to enhanced profit margins from its AI server business. He further suggests that the ongoing AI-driven compute investment cycle is poised to benefit branded server companies, including Dell.
While Dell may not be a primary beneficiary of the AI investment cycle, the company is expected to benefit from selling higher-end servers with higher average selling prices. This is driven by the increasing demand for servers with higher processing power and storage capacity to handle the complex computations involved in AI applications.
Dell’s earnings report comes just a day after NVIDIA Corporation, a leading player in the AI market, released its first-quarter financial results. Dell’s AI opportunity has been a prominent theme in recent quarters, with the company highlighting its strong position in bringing AI solutions to enterprises. During the first quarter, Dell witnessed significant growth in AI-optimized server orders, with shipments experiencing a more than 100% increase quarter-over-quarter. The backlog for these servers also surged by 30% to $3.8 billion in the first quarter.
With Nvidia’s strong performance setting the bar high, Dell will need to demonstrate a compelling narrative around its AI strategy to satisfy investors. Analysts have been adjusting their price targets for Dell, with some lowering them due to concerns about market conditions. However, CNBC host Jim Cramer expressed optimism about Dell’s prospects, suggesting that the stock has reached a bottom following an upgrade from Barclays. Cramer believes that Dell’s stock is undervalued and presents a buying opportunity. He also highlighted that Dell CEO Michael Dell was recognized as a key player in the AI sector at an Nvidia event, further reinforcing the company’s potential in this space.
Dell’s earnings report is expected to provide valuable insights into the company’s progress in leveraging the growing AI market. Investors will be closely monitoring the company’s performance in this area, along with its overall financial results, to gauge its future growth prospects.
