Dell Technologies Sets Positive Outlook for Earnings Growth and Capital Returns

Dell Technologies presented its optimistic outlook for earnings growth and capital returns to analysts in New York on Thursday morning. Despite a slight initial drop of 1.5% in the stock price, Wall Street hardware analysts expressed their satisfaction with the provided information.

Dell stock is currently trading 0.2% higher at $66.32.

Dell (ticker: DELL) confirmed its earlier forecast of revenue growth in the range of 3%-4%. Additionally, the company raised its long-term profit growth projection from at least 6% to a minimum of 8%. Dell anticipates achieving a conversion rate of 100% or better for net income into adjusted free cash flow. Shareholders can also expect a more significant return on their investment, with at least 80% of free cash flow being allocated to stock buybacks and dividends. Previously, Dell committed to returning just 50% to 60% of free cash flow. The company also plans to increase its stock repurchase program by $5 billion and aims to raise its dividend by at least 10% annually until fiscal 2028.

While the forecast for Dell's client solutions group (CSG), focused on PC sales, remains at a steady growth rate of 2% to 3% per year, the infrastructure solutions group (ISG), which includes servers, storage, and networking hardware, expects a more substantial growth rate of 6% to 8%. The overall revenue forecast, however, has not changed, which may seem puzzling. Dell's CFO, Yvonne McGill, explained in an interview with _ that this reflects the impact of losing some revenue associated with VMware (VMW). In 2021, Dell spun off its stake in VMware to shareholders, and VMware subsequently agreed to be acquired by Broadcom (AVGO). As a result, certain residual revenue linking VMware products through Dell will disappear. This factor, which analysts might have initially overlooked, is considered in the forecast.

While Dell acknowledges the advantageous impact of generative artificial intelligence software on its PC business, the company expects an even more significant boost for its server and storage divisions. Some investors may have anticipated a higher growth target due to the AI opportunity; therefore, the retention of the previous target likely influenced the stock's decline on Thursday. However, it is important to note that Dell remains optimistic about the opportunities presented by AI.

Dell: Embracing the AI Revolution

Dell Technologies, a prominent name in the tech industry, is set to benefit from the growing influence of artificial intelligence (AI). Industry experts have lauded the company's recent achievements and anticipate a promising future ahead.

AI is expected to have a substantial impact on Dell's server business, as well as its storage sales. Notably, the company is primed to see a surge in demand for PCs that are specifically tailored to accommodate AI computing. This positive outlook is reinforced by the anticipated refresh cycle in the laptop market, fueled by both AI-related work and the post-pandemic PC boom.

Market analysts have expressed their unwavering optimism towards Dell. Erik Woodring, an analyst at Morgan Stanley, not only maintains an "Overweight" rating on Dell stock but elevates it to a "Top Pick" designation. Woodring believes that Dell is currently undervalued and sets a price target of $89, implying a substantial 35% upside from recent levels. He cites Dell's conservative yet compelling long-term guidance, stronger commitment to capital return, and an underrated opportunity in AI as key factors for its potential "multiyear rerating story."

Asiya Merchant, an analyst at Citi, aligns herself with a bullish stance on Dell. Reiterating her "Buy" rating and $80 target, Merchant highlights Dell's advantageous position to capture the expanding market fostered by the emergence of AI. Furthermore, she acknowledges the stabilizing enterprise infrastructure spending and the impending PC-refresh cycle as catalysts for Dell's success.

Simon Leopold, an analyst at Raymond James, echoes the positive sentiment surrounding Dell by maintaining an "Outperform" rating on the company's shares. While Leopold appreciates Dell's recent progress, he believes that the market expected a more substantial AI tailwind. Notwithstanding this observation, Leopold views AI as an incremental positive driver for Dell's infrastructure segment, potentially outweighing other IT spending. However, he remains cautious about the stimulation of incremental growth for the client solutions group, emphasizing the prudence of management's forecasts.

To summarize, Dell Technologies finds itself at the forefront of the AI revolution, poised to reap the benefits of this technological advancement. Analysts unanimously champion Dell's potential for future success, underscoring its strategic positioning and undervalued status. With the stage set for growth and innovation, Dell's journey towards enhancing their offerings through AI continues.