According to the Zhitong Finance APP, Bernstein remains cautious about the long-term growth potential of the storage market, but is optimistic about the recent cyclical recovery. In terms of technology stock ratings, the company has given Dell Technologies (DELL.US) a "outperform" rating, while giving Hewlett Packard Enterprise (HPE.US) and IBM (IBM.US) a "neutral" rating with the large cap.

Dell Technologies: Recent Potential of AI Servers

The analyst team led by Toni Sacconaghi, Jr. remains optimistic about Dell Technologies, especially considering the recent growth potential of its AI servers. Although Dell's performance in Q1 FY2025 did not meet the market's very high expectations, analysts still believe that its AI server revenue is expected to substantially exceed expectations. Although this may be achieved at a lower profit margin, limiting the growth space of EPS, analysts expect the profitability of the Infrastructure Solutions Group to improve in the short term, partly benefiting from the increase in storage profit margins, which should alleviate the market's concerns. Analysts also note that although the digestion of AI infrastructure in the medium term may bring risks, considering that Dell's stock price has fallen sharply from its recent highs, any positive AI data point may trigger a stock price rebound.

Analysts also pointed out that despite the potential risks associated with AI infrastructure digestion in the medium term, any positive AI data point may trigger a stock price rebound, especially considering that Dell's stock price has fallen sharply from its recent highs.

Hewlett Packard Enterprise: Cautious attitude towards Juniper acquisition

Sacconaghi Jr. and his team hold a cautious attitude towards Hewlett Packard Enterprise's acquisition of Juniper, and maintain a "market perform" rating. Although Hewlett Packard Enterprise may achieve revenue growth this year due to strong growth in AI server shipments, the market disagrees on whether it can continue to benefit from AI beyond FY2024, especially given the reduction in backlog orders in Q2. Analysts also worry that Hewlett Packard Enterprise may focus on internal business in the next one to two years or longer, preparing for and integrating the acquisition of Juniper, which may pose a risk of declining traditional business share. They set a target price of $19 for Hewlett Packard Enterprise's stock.

Analysts also worry that Hewlett Packard Enterprise may focus on internal business in the next one to two years or longer, preparing for and integrating the acquisition of Juniper, which may pose a risk of declining traditional business share. They set a target price of $19 for Hewlett Packard Enterprise's stock.

IBM: Risk-return neutral

For IBM, analysts believe that its risk-return is relatively neutral. Although IBM's growth rate has improved, its recurring revenue and profitability levels are high, and it pays a stable 3.5% dividend. However, considering that IBM's organic revenue growth rate is about 2%, its valuation seems relatively reasonable compared to similar companies such as Cisco Systems (CSCO.US) and Oracle (ORCL.US).

Analysts believe that IBM's prospects for FY2025 are very favorable, as revenue is expected to benefit from acquisitions, new large machine cycles, and potential ELA cycles. They set a target price of $185 for IBM's stock. It is reported that the ELA cycle usually refers to the cycle of Enterprise License Agreement. This is a long-term contract between an enterprise and a software or service provider that allows the enterprise to use the provider's products or services during the contract period.

Deep thinking on the storage market

Sacconaghi Jr. and his team pointed out that the storage business of Dell and Hewlett Packard Enterprise is crucial to the stocks of these two companies, accounting for 30% and nearly 20% of their operating profits, respectively. However, the internal deployment of the external storage market has basically been a cyclical business over the past decade, without growth, and the market share of dedicated storage suppliers has also declined.

Although Dell, Hewlett Packard Enterprise, and IBM still lost market share in similar terminal markets, analysts believe that this is mainly due to limited sales success rates, lagging technological innovation, and platform complexity. The positive side is that Hewlett Packard Enterprise and Dell have been active participants and beneficiaries of hyper-converged infrastructure (HCI) growth. However, as HCI often dilutes profit margins due to the lack of software content, this is a strategic dilemma for Dell-although HCI can promote growth, it continues to put pressure on operating profit margins. Analysts said that Dell's storage profitability is now significantly lower than the profit margin of EMC as an independent company, which they attribute to growth, the transition to HCI, the transition from high-end storage, increased investment, and competitive dynamics.

In addition, analysts suspect that Dell's HCI revenue may slow down after it officially terminates its permanent license distribution agreement with VMware. Dell is trying to transfer customers to its PowerFlex product.

Storage has always been a focus area of Dell and Hewlett Packard Enterprise, but performance has been mixed, and new products, market changes, and acquisitions have not led to structural changes in business growth patterns. For IBM, storage seems to no longer be a strategic focus.