Dell stock price target raised to $130 from $125 at TD Cowen on AI demand

Dell Technologies is experiencing widespread analyst upgrades and positive market sentiment, largely driven by robust demand for its AI servers. The company reported strong quarterly results, including $29.8 billion in revenue and $2.32 EPS, exceeding expectations, and raised its fiscal 2026 revenue outlook to $105-109 billion, projecting approximately $20 billion in AI server revenue for the period. Despite a moderation in new AI orders quarter-over-quarter and gross margin pressure from lower AI margins, a substantial $11.7 billion AI backlog and ongoing Windows 11 refresh cycle underpin confidence in continued growth, prompting multiple firms to raise price targets.

Analysis

Dell Technologies is demonstrating significant momentum driven by robust demand for its Artificial Intelligence (AI) servers, which has led to a series of positive analyst price target revisions. The company reported $8.2 billion in AI server revenue in the July quarter and has accumulated an $11.7 billion AI backlog, underpinning its forecast for approximately $20 billion in AI server revenue for fiscal 2026. Consequently, Dell has raised its fiscal 2026 revenue guidance to $105-109 billion and its EPS target to a midpoint of $9.55. However, there are moderating factors to consider. New AI server orders slowed to $5.6 billion in the July quarter from $12.1 billion in the prior quarter, indicating a potential deceleration in the growth rate. Furthermore, gross margins compressed by 290 basis points to 18.7%, attributed to the lower-margin profile of AI hardware and one-time supply chain costs. Despite these pressures and an InvestingPro analysis suggesting the stock is slightly overvalued, a secondary demand driver exists in the PC market, where the Windows 11 refresh cycle is only about 50% complete, potentially supporting the Client Solutions Group into early fiscal 2027.

Key Decisions for Investors

• Investors should weigh the company's strong AI-driven growth, evidenced by a $11.7 billion order backlog and raised FY26 guidance, against valuation concerns following a 32% stock price increase over six months.
• It is critical to monitor gross margin trends and the pace of new AI server orders, as the recent 290 basis point margin contraction and a quarterly decline in new orders from $12.1 billion to $5.6 billion are key risk factors for future profitability.
• Consider the ongoing Windows 11 PC refresh cycle as a secondary, supportive catalyst that could provide a demand floor for the Client Solutions Group, diversifying revenue streams beyond the more volatile AI server market.
• Given that numerous analysts have raised price targets but TD Cowen maintains a 'Hold' rating, a prudent strategy could be to hold existing positions to capitalize on AI momentum while awaiting a more attractive entry point for new capital, reflecting a balance between strong fundamentals and a potentially stretched valuation.