MW Dell expected to provide lower guidance next week, but AI servers remain a big bright spot

By Therese Poletti

Melius says "Don't bet against Michael Dell"

Two analysts on Wall Street expect Dell Technologies Inc. to provide lower earnings guidance when it reports earnings next week due to lumpiness in AI servers, but two analysts remain bullish on its future.

Both Melius Research and BofA said in notes to clients on Tuesday that they expect Dell $(DELL)$ to give lower fiscal 2026 guidance when the computer and software company reports its fiscal fourth quarter on Feb. 27.

"We believe the discussion will be focused on AI server backlog/Blackwell delays," said BofA analyst Wamsi Mohan in a note to clients, referring to Nvidia Corp.'s $(NVDA)$ next-generation AI-chip platform. Mohan reiterated a buy rating but lowered his price target to $150 from $155.

Melius Research analyst Ben Reitzes had similar thoughts in his note, "Don't bet against Michael Dell."

"We believe investors are already bracing for Dell to guideF1Q26 EPS below the consensus of $1.80 (we are at $1.46), along withexpectations for lower guidance vs. the $9.34 consensus for FY26," Reitzes said in a note to clients, reiterating a buy rating.

But Reitzes pointed out that Dell has a lot of positive momentum, especially in AI-server deals. Reitzes maintained a $155 price target.

"Throughout the year, we still see prospects for Dell to deliver evenif the company offers more conservative guidance," Reitzes said, adding that he has confirmed a recent Bloomberg report on Dell getting a huge AI-server contract from Elon Musk's xAI startup. "The $5 billion xAI deal that Dell won (per Bloomberg) is real and the plan is to deploy these systems super quickly - even by mid-2025."

Even so, BofA said that investors should prepare themselves for inconsistencies in the AI-server business.

"Other server vendors have guided quarter-to-quarter revenue down during their update calls, but reaffirmed strength in AI orders/backlog," Mohan wrote. "Dell will likely see the same scenario where fiscal 1Q will have the lowest AI revs in fiscal 2026 and then deliver solid revenue once Blackwell starts to ship in higher volume."

Reitzes said Dell is still winning many other AI server deals as well.

"Dell is still highly engaged with Tesla and Tier 2 clouds for Nvidia-basedservers, which could equate to several billion in sales by fiscal year-end 2026," he wrote, adding that while Hewlett Packard Enterprise Co. $(HPE)$ and Super Micro Computer Inc. $(SMCI)$ are also in many deals, "Dell seems to be winning more than its fair share."

Shares of Dell were up over 3% in morning trading, but its shares are down about 36% from their highs last year. Reitzes noted that investors are still concerned about Dell's exposure to tariffs and supply chains in China, but that the company can rely on cost-cutting, component pricing and share buybacks to offset the impacts of tariffs.

"Dell is increasingly on the right side of AI in our opinion, rather than not - and will benefit when it eventually catalyzes enterprise and edge IT spending," Reitzes said.

-Therese Poletti

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 18, 2025 11:06 ET (16:06 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.