On Wednesday, Bernstein SocGen Group maintained its Outperform rating on Dell Technologies Inc. (NYSE:DELL) stock with a consistent price target of $140.00. The firm's analysis followed Dell's third-quarter earnings, which fell short of market expectations.
Dell's revenue for the quarter was slightly under the forecast, and the company's guidance for fourth-quarter revenue was nearly $1 billion less than anticipated. The shortfall was attributed to a delay in the PC upgrade cycle and a deferral in AI server deliveries due to the Blackwell project.
The firm has adjusted its revenue and EPS estimates for Dell's fiscal fourth quarter accordingly. Additionally, Bernstein SocGen Group has introduced an EPS estimate of $9.15 for Dell's fiscal year 2026. Despite the lower-than-expected results, Dell reported an increase in AI server orders to $3.6 billion, up from $3.2 billion in the previous quarter. AI server revenue also saw a slight uptick to $2.9 billion, marginally exceeding the consensus estimate of $2.8 billion.
Dell's AI server order pipeline has shown signs of improvement, now estimated to be between $15 billion and $20 billion, up from the previous estimate of $11 billion to $13 billion. However, the market had high expectations for order growth, especially in light of recent issues faced by competitor SMCI. Dell's explanation for the AI server revenue shortfall was similar to that given by SMCI.
The firm also expressed concerns over the health of the Tier 2 cloud service provider (CSP) market, noting that over 80% of Dell's AI server revenue likely continues to stem from these providers. Additionally, the firm indicated a cautious stance regarding the scaling laws in AI training, suggesting potential challenges ahead for the sector. Despite these concerns, the firm's rating and price target for Dell remain unchanged.
In other recent news, Dell Technologies demonstrated robust growth in its third quarter, with a 10% increase in total revenue to $24.4 billion. This expansion was primarily driven by the Infrastructure Solutions Group (ISG), which experienced a significant surge in revenue due to a concentrated effort on AI infrastructure and server solutions. The company's earnings per share also ascended to $2.15, marking a 14% year-over-year increase.
Dell's AI server orders reached a record $3.6 billion, indicating a strong demand in the AI server market. The company also launched new product innovations, including high-capacity server racks and enhanced storage solutions, demonstrating its commitment to maintaining a competitive edge in the rapidly evolving technology landscape.
However, it's worth noting that Dell's Client Solutions Group (CSG) revenue experienced a slight decrease of 1%, down to $12.1 billion. Despite this minor downturn, the company remains optimistic about the fiscal year 2026, expecting growth in PC and server refresh cycles and a continued rise in demand for AI servers.
These recent developments reflect Dell's strategic focus on AI infrastructure and server solutions, which has resulted in substantial growth in its ISG. As Jeff Clark, a key executive at Dell, stated, the company's unique operating model and leading end-to-end solutions portfolio position it well to capitalize on the growing AI market.
InvestingPro Insights
Dell Technologies Inc. (NYSE:DELL) continues to show resilience in a challenging market environment. According to InvestingPro data, the company's market capitalization stands at $99.5 billion, reflecting its significant presence in the Technology Hardware, Storage & Peripherals industry. Despite the recent earnings miss, Dell's financial metrics paint a picture of a company with strong fundamentals and growth potential.
InvestingPro Tips highlight that Dell has been aggressively buying back shares and offers a high shareholder yield, demonstrating a commitment to returning value to investors. This is further supported by the company's dividend growth, with Dell having raised its dividend for three consecutive years. The current dividend yield is 1.26%, with a robust dividend growth rate of 20.27% over the last twelve months.
The company's valuation metrics are particularly intriguing. With a P/E ratio of 25.38 and a forward P/E ratio of 22.07, Dell is trading at a low P/E ratio relative to its near-term earnings growth potential. This is underscored by a remarkably low PEG ratio of 0.23, suggesting that the stock may be undervalued considering its growth prospects.
Dell's financial performance remains solid, with revenue of $91.84 billion over the last twelve months and a gross profit of $20.7 billion. While revenue growth has been modest at -1.9% over the same period, the company has maintained profitability with an operating income margin of 6.42%.
Investors looking for more comprehensive analysis can find additional insights on InvestingPro, which offers 13 more tips for Dell Technologies Inc.
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