Analyst Sees 16% Upside Potential for Dell Technologies (DELL) Amid New Growth Catalysts
We recently published a list of Top 10 AI Stocks Investors are Talking About in October. Since Dell Technologies Inc (NYSE:DELL) ranks 9th on the list, it deserves a deeper look.
Venu Krishna, Barclays head of U.S. equity strategy, said while talking to CNBC in a latest program that he is not revising his S&P 500 year-end projection of 5,600 because he believes stock valuations are “full.”
“If you see what’s happening, numbers (earnings) have been cut sharply going into the end. What is still anchoring the market is big tech, even though their earnings themselves are kind of decelerating. Then seasonality comes into play. October is the weakest month, and you don’t want to get ahead of that.”
Asked whether he does not believe the market really broadened out, Krishna said while there were some signs of market broadening, the “anchor” of the rally remains big tech, which according to him, are just six stocks.
Moving beyond the earnings and valuations debate, another factor still impacting investor sentiment is the Federal Reserve’s next moves.
Talking about the latest Fed minutes released October 9, Wolfe Research’s Stephanie Roth said on CNBC that a “substantial” majority of Fed officials wanted a 50-basis-point rate cut. However, she said in the next meeting, a 50bps rate cut is “off the table.”
For this article we picked 10 AI stocks trending on latest news. With each stock we mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Dell Technologies Inc (NYSE:DELL)
Number of Hedge Fund Investors: 88
Dell Technologies Inc (NYSE:DELL) has seen its shares surge more than 60% year-to-date and 80% over the past year, driven by a boom in AI-related server spending. Deutsche Bank believes there’s more upside ahead.
“We expect top-line growth to accelerate into the double digits over the next several quarters, as Dell Technologies Inc (NYSE:DELL) benefits from a confluence of tailwinds across key segments, where it is a share leader (servers, storage, and commercial PCs),” noted Deutsche Bank analyst Matt Niknam, who holds a Buy rating and a $144 price target on the stock. The price target is about 16% higher than the current stock price.
Niknam pointed to Dell’s momentum in AI servers, combined with a recovery in traditional servers, as key factors supporting the company’s medium and long-term growth. “We believe DELL is well positioned to capitalize on the next legs of AI growth/proliferation across enterprises, given its product scale, breadth of services/solutions, and go-to-market footprint,” he added.
While Dell has benefited from AI-related spending, the PC market has been more volatile. Still, Niknam expects a PC refresh cycle to boost the company’s Client Solutions Group, particularly in the commercial sector. He forecasts low-to-mid teens growth (10-15%) in the next three quarters and consolidated growth of 8% and 6% in FY26 and FY27, respectively—well above Dell’s multi-year outlook of 3-4%.
Dell Technologies Inc (NYSE:DELL) strong capital return program is another bright spot. Niknam expects earnings per share to grow at a compound annual rate of 14% between fiscal 2025 and fiscal 2028, with net income rising 12%, partly due to share buybacks. Around 80% of Dell’s free cash flow is being returned to shareholders through dividends and buybacks, providing what Niknam calls a “clean and simple capital allocation framework.” He expects Dell’s adjusted free cash flow to hit $4.8 billion this year, climbing to $7.4 billion by fiscal 2028.
Currently paying $1.78 in annual dividends, Dell Technologies Inc (NYSE:DELL) dividend is expected to grow by 10-12% over the next several years.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its Q2 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) was a top contributor despite reporting disappointing first-quarter earnings results, because investors looked through the near-term disappointment and expected strong growth from AI-related servers and personal computers. We expect Dell to participate in the growth of artificial intelligence hardware, especially as enterprises invest more aggressively. We like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
Overall, Dell Technologies Inc (NYSE:DELL) ranks 9th on Insider Monkey’s list titled Top 10 AI Stocks Investors are Talking About in October. While we acknowledge the potential of Dell Technologies Inc (NYSE:DELL), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DELL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.