Dell Technologies stock soared nearly 30% today after the company reported a better-than-consensus fourth quarter.
Behind the numbers: The traditional computer maker showed that its server business for artificial intelligence is gaining more and more traction.
Revenue was in line with the market, with a drop of 11% to US$22.3 billion. But earnings per share were $2.20, while the consensus was $1.73.
The big highlight was the ‘infrastructure solutions’ vertical, which encompasses the so-called ‘AI-optimized servers’, including the PowerEdge XE9680, the company’s flagship product.
Dell said the “strong momentum in AI-optimized servers continues, with orders increasing nearly 40% sequentially and the backlog nearly doubling, ending the fiscal year at $2.9 billion.”
The pipeline of potential orders also increased dramatically, reaching “multiple times the size of the backlog. “These are all signs that support our optimistic view of the AI server market and show that Dell is a clear leader in the $72 billion AI hardware and services market today and is expected to grow 20% annually. reaching $152 billion by 2027,” Morgan Stanley wrote.
“At the same time, we believe the company’s guidance of revenue of $93 billion in 2025 and earnings per share of $7.50 are conservative. Our new estimate for 2025 is revenue 3% above guidance and profit 6% higher.”
Servers for AI EBITDA margin also expanded, and Dell said it saw a broader, less concentrated order base, with new SMB and enterprise customers, and orders more spread across different SKUs.
The company also said that demand for AI servers continues to outpace supply, a dynamic the company believes is likely to continue this year.
“Looking ahead, we still believe the AI server opportunity is in its early days, especially for a more enterprise-focused company like Dell,” wrote Morgan Stanley.
The bank said it now expects AI server revenue of $8 billion in 2025, compared with a previous estimate of $3.9 billion.
“This is equivalent to Dell’s current backlog and pipeline, which we believe is conservative, with each $2 billion of additional revenue leading to a $0.20 upside in earnings per share.”
This morning, Morgan Stanley increased its target price for the stock to US$128 – but with today’s rise, the stock is now trading at around US$122, with the company worth US$87 billion in New York.
After the result, eight other analysis houses also raised their target prices for the stock.
Pedro Arbex