Dell's stock has slumped since earnings. Why BofA sees a 30% gain ahead.

By Emily Bary

Various factors could drive a margin uplift for Dell, according to an analyst

Dell Technologies Inc. shares have lost about 20% since the company disappointed with its margin commentary at the end of last month, but a BofA analyst sees brighter days ahead for the server maker's stock.

While Dell shares (DELL) enjoyed a big 2024 rally in the lead up to the latest earnings report, investors ended up disappointed that the company's boom in sales of artificial-intelligence servers wasn't helping margins. BofA's Wamsi Mohan, however, thinks that AI-server margins ultimately will turn higher.

"We believe that Dell is receiving a premium for its engineering and value add in AI servers despite not being the price leader of the product," he wrote in a Thursday note to clients.

AI-server margins should eventually come to benefit as higher-margin deferred revenue related to services kicks in, he added. Plus, higher-margin enterprise customers could make up a greater mix of the company's business.

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"If margins trend higher over time with liquid cooling, there can be incremental upside as well," he wrote. Additionally, while the last quarter was seasonally weak within the storage business, that's primed for a sequential pickup that could help margins, he said.

The prospect of greater margin trends is one reason Mohan expects Dell's stock to "outperform significantly" next year. He has a buy rating and $180 price objective on the shares. Dell's stock was trading Thursday at $135.61, so that price objective implies more than 30% upside.

Mohan is also upbeat about the potential for growth in personal computers spurred by demand for AI PCs, the Windows refresh and a replacement cycle for aging devices.

Dell shares were up 2.5% toward the end of Thursday's session. Server stocks generally were seeing momentum in the wake of Broadcom earnings that showed AI traction: Super Micro Computer Inc. (SMCI) shares were up 13.2% and among the top S&P 500 SPX gainers, while Hewlett Packard Enterprise Co. shares (HPE) were up 4.1%.

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-Emily Bary

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06-13-24 1540ET

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