On Wednesday, BofA Securities updated its outlook on Dell Technologies Inc. (NYSE:DELL), raising the stock price target to $130 from the previous $116, while reiterating a Buy rating on the stock. The adjustment follows Dell's report of significant growth in its artificial intelligence (AI) optimized server business during the fourth quarter of fiscal year 2024 (F4Q24).
Dell experienced a near doubling of its order backlog, reaching $2.9 billion up from $1.6 billion at the end of the previous quarter.
The company's AI optimized server orders saw a 40% quarter-over-quarter increase, with a large portion of the shipped servers being used for training purposes. Dell's ability to meet the demand for AI servers is currently limited by the availability of GPUs.
Management indicated that once the necessary GPUs are secured, the company can quickly dispatch the AI servers. The lead time for the H100 GPU model is showing signs of improvement, although market demand continues to exceed the supply. Moreover, Dell has commenced accepting orders for the new H200 GPU.
BofA's analyst highlighted the potential for higher capital returns and positive free cash flow influenced by a negative cash conversion cycle, as well as growing PC revenue. The firm's forecast for Dell's revenue and earnings per share (EPS) for fiscal year 2025 (F25E) has been revised upwards to $93.0 billion and $7.78 respectively, from the previous estimate of $92.3 billion and $7.60.
The price objective has been increased based on a valuation of 15 times the projected calendar year 2025 EPS of $8.47, which is an increment from the prior multiple of 14 times an EPS of $8.27. BofA attributes the higher multiple to the anticipated revenue growth driven by robust demand for AI servers.
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