On Wednesday, Citi maintained its Buy rating on Dell Technologies (NYSE:DELL) stock but reduced the price target to $156 from $160. The adjustment follows Dell's reported revenue and guidance falling short of market expectations, primarily due to the timing of artificial intelligence (AI) revenues and a more subdued personal computer (PC) market.
Dell's stock experienced a decline of approximately 10% after the announcement. Despite a slight decrease in AI revenues quarter-over-quarter, the company's order book and backlog saw significant growth, with an 11% and 16% increase respectively. The AI pipeline also expanded by 50% quarter-over-quarter, now estimated to exceed $23 billion.
Management highlighted that AI revenue fluctuations are largely dependent on the timing of customer acceptance, but noted that Dell is gaining traction with enterprise customers. The Infrastructure Solutions Group (ISG) margins showed quarter-over-quarter improvement, driven by a recovery in storage and mainstream server segments, although the Client Solutions Group (CSG) underperformed due to a less robust PC market.
Looking forward, Dell is optimistic about growth drivers across all its business segments. The company expects the robust AI pipeline, momentum in server recovery, and storage, as well as an anticipated PC market recovery, to contribute to its growth. Citi's revised price target reflects a price-to-earnings (PE) ratio of approximately 16 to 17 times, based on mid to high teens compound annual growth rate (CAGR) expectations.
In other recent news, Dell Technologies Inc. (NYSE:DELL) has been the focus of several positive assessments from leading financial firms. Goldman Sachs maintained a Buy rating on Dell, increasing its price target to $165, while Bernstein SocGen Group upheld its Outperform rating with a price target of $140.00. These evaluations followed Dell's third-quarter results, which, despite falling short of market expectations, revealed a 10% increase in total revenue to $24.4 billion.
This growth was largely driven by the company's Infrastructure Solutions Group (ISG), which saw a surge in revenue due to a concentrated effort on AI infrastructure and server solutions. The company's earnings per share also increased 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.
Despite a slight decrease in the Client Solutions Group (CSG) revenue, Dell remains optimistic about 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. 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.
InvestingPro Insights
Dell Technologies' recent performance and future outlook can be further illuminated by key financial metrics and expert insights from InvestingPro. Despite the recent stock decline following the earnings report, Dell's market capitalization stands at a robust $99.5 billion, underscoring its significant presence in the technology hardware sector.
InvestingPro data reveals that Dell's P/E ratio is currently at 25.38, with an adjusted forward P/E of 22.07, suggesting that the market still values the company's earnings potential. This is particularly noteworthy given the company's PEG ratio of 0.23, indicating that the stock may be undervalued relative to its expected growth.
Two relevant InvestingPro Tips highlight Dell's financial strategy and market performance. Firstly, "Management has been aggressively buying back shares," which aligns with the company's confidence in its long-term prospects despite short-term challenges. Secondly, Dell has shown a "Strong return over the last three months," with a price total return of 27.16% in that period, demonstrating resilience in the face of recent market pressures.
These insights complement Citi's analysis, providing a broader context for Dell's current position and future potential in the AI and PC markets. For investors seeking a deeper understanding, InvestingPro offers 11 additional tips that could further inform investment decisions regarding Dell Technologies.
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