This old tech name is now a top AI play, according to analysts

Dell Technologies shares fell 8.9% after the company issued a weak third-quarter outlook, despite reporting second-quarter results that surpassed analyst estimates. However, Wall Street analysts largely maintain bullish stances, viewing the stock's pullback as overdone. Firms like Bank of America, JPMorgan, Goldman Sachs, and Morgan Stanley emphasize Dell's strong position in the artificial intelligence (AI) server market, anticipating significant long-term EPS growth driven by AI demand that is expected to outweigh near-term margin pressures and the softer Q3 guidance.

Analysis

Dell Technologies (DELL) presents a clear disconnect between near-term market sentiment and long-term analyst conviction following its latest earnings report. The stock experienced an 8.9% decline after the company issued a third-quarter earnings outlook of $2.45 per share, falling short of the $2.55 consensus estimate. This guidance miss, coupled with a second-quarter Infrastructure Solutions Group (ISG) margin of 8.8% that was below the 9.4% consensus, fueled the sell-off. The margin pressure was attributed to a higher mix of initially lower-margin AI server revenue, competitive pricing, and one-time costs related to supply chain and GB200 deployments. However, prominent Wall Street firms view this pullback as a strategic entry point, maintaining overweight and buy ratings. The consensus is that Dell is a burgeoning 'AI server juggernaut,' with Bank of America forecasting 15% long-term EPS growth over the next five years. Analysts emphasize that Dell's AI pipeline represents multiples of its current backlog, signaling robust future demand. The margin compression is widely seen as a temporary issue, a byproduct of strong AI server adoption that is expected to reverse in the second half of the fiscal year, a point highlighted by Morgan Stanley. Furthermore, the firm noted emerging strength in enterprise AI demand and double-digit growth in traditional servers and all-flash storage portfolios, suggesting underlying health beyond the headline margin figure.

Key Decisions for Investors

• Long-term investors may consider the 8.9% share price pullback an opportunity to build or add to positions, capitalizing on the market's focus on short-term guidance while analyst consensus points to a strong, multi-year growth runway driven by AI servers.
• It is critical to monitor Infrastructure Solutions Group (ISG) margins in subsequent quarters for the expected recovery in the second half of the year, as this will be a key validation point for the bullish thesis that current margin pressure is temporary.
• Investors should scrutinize future earnings reports for evidence of Dell's large AI server pipeline converting into revenue and for management's commentary on competitive pricing dynamics, as these are the primary factors underpinning the long-term growth narrative.