Source: Zhitong Finance
Dell's quarterly results and recent guidance may not have impressed the market, yet Wall Street still rejected the case, largely due to the AI boom.
Whereas$Dell Technologies (DELL.US)$The year-to-date increase has reached 127%, and the market's expectations for the company are very high. The IT giant's quarterly results and recent guidance may not have left a deep impression on the market. However, Wall Street still rejected its case, largely due to the AI boom.
As of press release, the company's stock price was down 19.06% to $137.53.
Bank of America analyst Wamsi Mohan (Wamsi Mohan) said that the sharp sell-off may stem from several factors, including a backlog of 3.8 billion US dollars of artificial intelligence servers (lower than the 4 billion to 5 billion US dollars expected by some people); gross margin guidelines for fiscal year 2025 are expected to drop 150 basis points year over year.
However, Mohan still believes in Dell and wrote in an investor statement: “We are reaffirming our purchase because we are still in the early stages of AI applications, and the pipeline and momentum around AI servers continues to be strong. We believe that over time, Dell will be able to obtain higher artificial intelligence profit margins (increase in the combination of enterprises and CSP, and increase in the added value of storage and services).” Mohan also set Dell's price target at $180.
Financial data and performance guidance
For the first quarter ending May 3, Dell's revenue was US$22.24 billion, exceeding analysts' agreed expectations of US$21.65 billion, and adjusted earnings per share of US$1.27, falling short of analysts' agreed expectations of US$1.29.
Among the company's two major business divisions, the Customer Solutions division's revenue was $12 billion, the same as the previous year. The division's revenue was $732 million. Dell's Infrastructure Solutions division achieved fourth-quarter revenue of $9.2 billion, up 22% year over year. Operating revenue was $736 million.
Gross margin for the quarter was 22.2%, down 250 basis points, due in part to a competitive pricing environment and an increase in the AI-optimized server portfolio.
The company issued mixed results guidance for the next quarter. Adjusted earnings per share ranged from $1.55 to $1.75, below the agreed forecast of $1.88 per share. Revenue is expected to be between $23.5 billion and $24.5 billion, higher than the forecast of $23.35 billion.
For fiscal year 2025, Dell now expects adjusted earnings of $7.40 to $7.90 per share (higher than the previous forecast of $7.25 to $7.75 per share), compared to the previous forecast of $7.84 per share. Revenue is expected to be between $93.5 billion and $97.5 billion, higher than the previous forecast of $91 billion to $95 billion.
Buyers who bought on bargain
In addition to Mohan, many others are confident in Dell and believe that, despite expectations ahead of schedule, the future is bright for Dell.
Morgan Stanley analyst Erik Woodring (Erik Woodring) wrote in a report: “We chose to buy at a low point because the AI ecosystem is growing enough to offset the recent disappointing profitability impact [of the infrastructure solutions business].”
Woodring added, “In other words, tonight's short-term turbulence will hardly damage our argument that Dell will still be the beneficiary of the AI infrastructure and generate $10.12 per share next year, and we are seeing a number of upcoming soft and hard catalysts that could help drive further excess earnings, including Computex (June 3-7), our visit to Dell headquarters (June 13), wins for potential new AI factory customers, and eventual inclusion in the S&P 500 Index.” After the earnings report was released, he gave Dell an “overweight” rating and raised the target share price from $152 to $155.
Evercore ISI analyst Amit Daryanani (Amit Daryanani) agreed and further stated that if supply meets demand, Dell's artificial intelligence server shipments this year will reach $10 billion.
Daryanani wrote in a note: “Fundamentally, we believe that while this performance report is disappointing, it is only a small episode in the forward-looking growth narrative, as Dell's ability to scale up AI servers and increase its add-ons in storage, networking, and services will help expand (or at least) maintain [the infrastructure solutions business] profit margin [above] 11%.” Daryanani gave Dell an “outperforming market” rating, and the target share price was $165.
Edit/jadyen