Dell surges 9% on optimism it has secured big AI server orders

Microsoft

  • Dell shares rose over 9% on Wednesday to an all-time high after a note predicted the company will rake in sales from the insatiable demand for AI servers.
  • Most of these AI servers are built around Nvidia's chips and there is a close relationship between Dell and Nvidia's CEOs.

Dell shares rose over 9% on Wednesday to an all-time high after Morgan Stanley raised its price target and predicted the company would rake in sales from the insatiable demand for artificial intelligence servers.

Dell is seeing accelerating momentum, especially in winning business to build AI servers, unlocking a new bull case for the stock, Morgan Stanley analyst Erik Woodring wrote in a note on Wednesday. He upgraded his price target on Dell from $128 per share to $152 a share and called it a top pick.

"All-in, we are hearing about more AI server momentum at Dell than at any other OEM," Woodring wrote, saying that he expected about $10 billion of AI server revenue in the company's fiscal 2025 — ending next February.

Wednesday's move was the largest since March 1, when the stock surged after earnings showed the computer manufacturer is benefitting from the AI boom.

Dell shares are now up over 95% in 2024, trailing the 220% gain from rival AI servermaker Super Micro Computer, but surpassing Hewlett Packard Enterprise's 5% gains this year.

Most AI servers are built around Nvidia's chips which have become prized in the technology industry because they are used to build and deploy advanced AI models from companies like Google, OpenAI and Meta. Dell sells servers using the newest Nvidia AI chips, including its H100 GPU and the latest Blackwell-generation chips.

At Nvidia's annual conference in March, Nvidia CEO Jensen Huang appeared to send customers who want the latest AI chips to Dell for orders.

"You're going to need an AI factory," Huang said. "And nobody is better at building end-to-end systems of very large scale for the enterprise than Dell."

"Michael [Dell] is here and he's happy to take your order," Huang continued.

"While the near-expontential ramp of Nvidia GPU shipments and AI servers builds make it difficult to pin down exact growth rates," Woodring wrote, he has confidence in Dell's business for a variety of reasons, including strengthening demand for AI servers and that he models Dell's market share increasing.

He wrote that Dell may be able to upsell its customers and "attach" additional hardware, such as data storage.

Dell is expected to announce its April quarter earnings later this month. Nvidia reports earnings for its quarter ending in April next week.

Dell's other business, building PCs for consumers and businesses running Microsoft Windows, could get a boost next week when Microsoft reveals new capabilities at its conference, including long-awaited AI features that many analysts expect to drive demand for new PCs.

PC sales have slumped for two years in a post-pandemic hangover, as consumers and enterprises who bought new machines during 2020 and 2021 pushed back the timeline for their next upgrades.

But the PC industry is on course to grow again and is outperforming lowered expectations, Woodring wrote, which will benefit Dell.

"We remain bullish on the PC market recovery as we are not only hearing about upgrade/refresh demand in our recent CIO and VAR checks, but also seeing upward revisions to notebook ODM builds in recent months," Woodring wrote.

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