Is Dell stock a good buy?
Dell Technologies (NYSE:DELL) stock was soaring on Wednesday, rising some 7% on a strong third quarter earnings report and an even better outlook.
The noted PC and laptop manufacturer makes more of its income these days from its Infrastructure Solutions Group, which includes data storage, server, and networking businesses for data centers, companies and the cloud.
In the third quarter, overall revenue rose 11% to $27 billion, which fell just short of estimates of $27.1 billion. Net income surged 32% to $1.55 billion, while earnings were up 39% year-over-year to $2.28 per share. Adjusted earnings were $2.59 per share, up 17% and better than estimates of $2.48 per share.
So, while revenue technically missed lofty estimates, it was still a strong quarter across the board as the revenue and earnings results were both records.
The infrastructure group led the way with revenue of $14.1 billion, up 24% year over year. Operating income in this segment rose 16%. The Client Solutions Group, which includes PC sales, saw revenue rise 3% to $12.5 billion with operating income flat.
“In the third quarter we delivered record Q3 revenue of $27 billion, record Q3 profitability, strong cash generation and above-trend capital return of $1.6 billion,” David Kennedy, chief financial officer, Dell Technologies, said.
150% increase in server shipments
The Q3 results were strong, but the outlook was even better as Dell raised its guidance, based on a massive increase in AI server shipments.
“FY26 will be another record year, and we’re raising our AI shipment guidance to roughly $25 billion, up over 150% year over year, and revenue guidance to $111.7 billion, up 17%,” Kennedy said.
The previous guidance had revenue targeted at $107 billion at the midpoint. Full-year EPS is expected to be $8.38 at the midpoint, up 31% year over year, with adjusted EPS to be $9.92 at the midpoint, up 22%. The previous EPS guidance called for earnings of $7.98 per share and adjusted earnings of $9.55 per share.
The massive pipeline of AI server orders should continue to drive revenue higher next fiscal year.
“AI momentum is accelerating in the second half of the year, leading to record AI server orders of $12.3 billion and an unprecedented $30 billion in orders year to date,” Jeff Clarke, vice chairman and chief operating officer, Dell Technologies, said. “Our five-quarter pipeline is multiples of our $18.4 billion backlog with a mix of neocloud, sovereign and enterprise customers.”
“Winning in AI”
Clarke said Dell is “winning in AI” due to its ability to engineer tailored solutions and rapidly deploy large, complex clusters.
Dell stock got a slew of price target upgrades on Wednesday, with Mizuho bumping it up to $175 per share, UBS raising it to $167 per share, and BofA increasing it to $163 per share, among others.
There is a lot to like about Dell stock. It is cheap, trading at 16 times earnings and 11 times forward earnings. With its pipeline, AI server momentum, and relatively cheap valuation, this market leader is in a great position to keep growing.
It has a median price target of $170 per share, which suggests 26% upside.
