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Dell stock jumps after being named new top pick at JPMorgan

Published 08/15/2024, 07:36 AM
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Dell Technologies (NYSE:DELL)' shares have risen more than 2% premarket Thursday after JPMorgan analysts named it a new top pick, highlighting the company's potential for significant long-term growth, particularly in the AI server market and traditional infrastructure.

In a note to investors, JPMorgan reaffirmed its Overweight rating on Dell and set a new price target of $160 by December 2025. The bank added the stock to its Analyst Focus List as a value pick

The analysts pointed out that Dell shares had underperformed other AI-related stocks and the broader market, partly due to concerns about margin pressures in the AI server market. However, JPMorgan believes these fears are overblown.

"The AI Server revenue opportunity remains large," the analysts noted, adding that estimates related to the AI server total addressable market (TAM) are likely to increase as cloud capital expenditure forecasts are revised higher.

They also emphasized that as customer adoption drives revenue growth, profit margins are expected to expand, particularly with a shift toward smaller cloud and enterprise companies expected to dominate AI server purchases post-2026.

Beyond AI servers, JPMorgan believes Dell's prospects in traditional infrastructure and enterprise storage markets also appear strong, with significant revenue and margin opportunities.

While AI PCs are not yet a major driver of market expansion, the investment bank feels they could contribute to near-term revenue growth through increased volumes and pricing.

JPMorgan estimates Dell's earnings power to reach approximately $11 per share in FY27, supported by growth in both traditional infrastructure and AI servers, as well as operational savings and share buybacks.

The bank explains that the earnings potential justifies a valuation multiple of around 15x, higher than peers like Cisco (NASDAQ:CSCO) and NetApp (NASDAQ:NTAP), and supports JPMorgan's bullish outlook on Dell's stock.

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