Dell Technologies is poised to experience significant revenue and earnings enhancements in its fiscal second quarter and throughout the year, according to insights from Morgan Stanley. This optimistic forecast comes in light of a favorable market environment spurred by momentum in artificial intelligence (AI) servers.
For the upcoming second quarter, Morgan Stanley has revised its revenue predictions upward by 2.2%, now anticipating revenues of $24.66 billion. This figure surpasses management’s guidance, which lies between $23.5 billion and $24.5 billion, and is also 2.3% above the consensus estimate. In terms of earnings, the adjusted earnings per share (EPS) forecast has been increased from $1.69 to $1.71, aligning closely with Dell's upper guidance range and exceeding the anticipated consensus of $1.68.
The surge in AI server demand and the enhanced pricing of personal computers were primary drivers behind the elevated revenue estimates for the July quarter, as indicated by Morgan Stanley’s recent research note. Their findings revealed that Dell shipped 12,000 HGX AI servers, translating into a remarkable $3.3 billion in AI server revenue.
This contrasts sharply with Morgan Stanley's earlier expectations of 8,000 shipments generating $2.3 billion in revenue. In light of these developments, Morgan Stanley has also heightened its estimates for Dell's Infrastructure Solutions Group (ISG) by 5.5%. The brokerage projects that ISG's operating margin will expand by 170 basis points quarter-over-quarter to reach 9.7%.
Interestingly, the stronger pricing of PCs is expected to more than counterbalance an anticipated decline in shipments, according to their analysis. Looking at a year-over-year perspective, ISG’s operating margins, a metric that caused some investor alarm in the previous quarter, are expected to see a contraction of 300 basis points.
However, this decline is attributed mainly to a shift in product mix favoring AI servers and a reduction in storage margins year-over-year. Predictions indicate that margins for AI servers will improve as compared to previous years. Morgan Stanley even projects that Dell could approach nearly $14 billion in AI server revenue this year, based on expectations of about 50,000 shipments amidst rising business momentum and repeat client purchases.
However, it should be noted that the firm’s forecast for AI server shipments in the latter half of the year is 20% lower than signals from supply chain checks, suggesting potential for further upside against Morgan Stanley’s estimate of $11.7 billion revenue. Furthermore, Morgan Stanley anticipates that Dell will uplift its full-year revenue guidance by at least $1 billion, aiming for close to $12 billion in AI server revenue, a notable increase from an earlier forecast of $11 billion.
The bank has revised its overall revenue target for the year slightly down to $97.55 billion from $97.68 billion, while also reducing its non-GAAP EPS outlook from $8 to $7.90. However, both figures are expected to remain above consensus expectations. Continuing its positive outlook, Morgan Stanley has reaffirmed an overweight rating on Dell stock, albeit with a revised price target lowered to $142 from the previous $155.
This alteration is based on a reduced fiscal estimate for earnings per share in 2026, now projected at $10.12, down from $10.34, while still being 11% higher than consensus estimates. Current Share Price: 111.24, Change: -0.06, Percent Change: -0.05 $DELL.