Dell stock price target raised to $155 from $145 at UBS on AI momentum

Dell reported strong Q2 results, exceeding revenue and EPS estimates with $29.8 billion and $2.32 respectively, driven by robust AI server revenue of $8.2 billion. The company also raised its fiscal year 2026 AI revenue target to $20 billion, prompting UBS to increase its price target to $155. Despite these positive indicators and an improved long-term AI forecast, the stock declined, reportedly due to a soft current quarter guidance, while gross margins were pressured by the strong mix toward AI server revenue.

Analysis

Dell Technologies reported a strong second quarter, with revenue of $29.8 billion and EPS of $2.32 surpassing analyst estimates, primarily driven by a significant outperformance in its artificial intelligence server business which generated $8.2 billion in revenue. Despite this beat and an increase in the company's fiscal year 2026 AI revenue target to $20 billion, the stock declined due to a soft guidance for the current quarter. The positive momentum in AI servers is creating margin pressure, with the company's gross margin falling to 18.7%, below UBS's 19.2% estimate, a challenge highlighted by InvestingPro as a key concern. Furthermore, performance in other key segments was weak; the Client Solutions Group (CSG) grew by only 1%, underperforming competitor HP by approximately 500 basis points, and storage revenue declined by 3%, missing estimates by a significant 6%. While the trailing twelve-month PEG ratio of 0.86 suggests attractive growth relative to its earnings, the combination of a weaker near-term outlook, margin dilution from the AI server mix, and lagging performance in core non-AI businesses has tempered investor enthusiasm following a 31.8% stock appreciation over the past six months.

Key Decisions for Investors

• Investors should closely monitor Dell's gross margins in upcoming quarters, as the current AI server sales boom is diluting overall profitability and represents a key headwind.
• Scrutinize the performance of the core Client Solutions Group and storage segments, as a recovery in these businesses is critical to offset margin pressure and demonstrate balanced growth beyond the AI narrative.
• Given the stock's decline was attributed to soft near-term guidance, it is prudent to weigh the company's strong long-term AI potential against the immediate headwinds, potentially waiting for a more attractive entry point or evidence of execution against the lowered expectations.
• Acknowledge that the raised fiscal 2026 AI revenue target was in line with expectations, offering no significant upward surprise, and therefore focus on future guidance for signs of re-acceleration.