Breaking News: Mizuho Initiates Coverage on Dell Technologies Inc. (DELL) with Outperform Rating and $135 Price Target | AI Server Market Set to Reach $406 Billion by 2027 | Super Micro Computer Faces Challenges | Dell Positioned for Growth
On Monday, Mizuho initiated coverage on Dell Technologies Inc. (NYSE: DELL) with an Outperform rating and a price target of $135. The move comes as generative AI is seen as a key driver of growth and innovation across various markets, leading to an increased demand for AI servers, which are essential for this technological revolution.
According to the analyst from Mizuho, the AI server market is expected to reach approximately $406 billion by the year 2027, expanding at a compound annual growth rate (CAGR) of around 54%. This growth is attributed to the demand from Cloud Service Providers (CSPs), including Hyperscale and Tier 2, as well as enterprise demand.
The coverage highlights that while the AI server market is experiencing exponential growth, there are profitability risks due to factors such as low differentiation, a concentrated customer base, and rising competition. Super Micro Computer, Inc. (NASDAQ: SMCI) is recognized as the current market leader in AI servers but is experiencing challenges including share loss, margin pressure, negative free cash flow (FCF), and internal control issues, as evidenced by delays in their 10-K filings.
In contrast, Dell is viewed as better positioned to capitalize on market opportunities due to its diverse portfolio, which includes servers, PCs, and storage solutions. The company also boasts a stronger balance sheet with robust free cash flow and effective working capital management.
While initiating coverage on Dell with a positive outlook, Mizuho has simultaneously assigned a Neutral rating to Super Micro Computer, Inc. with a price target of $450. The contrasting ratings reflect the differing prospects and positions of the two companies within the rapidly growing AI server market.
In other recent news, Dell Technologies has been the focus of several key developments. The company reported robust growth in its core businesses during its recent earnings call, with the Client Solutions Group and Infrastructure Solutions Group growing 12% and 38% respectively. Dell is also expanding its presence in the artificial intelligence (AI) market, boasting a $3.8 billion backlog in the AI space.
Susquehanna initiated coverage on Dell, issuing a Neutral rating and a price target of $120.00. The firm noted Dell's large scale, recognized brand, and strong internal financing capabilities as key advantages, but expressed concerns about the uncertain economic returns of AI hardware and Dell's strategy for scaling its AI services.
Meanwhile, Evercore ISI maintained a positive outlook on Dell, reiterating an Outperform rating with a $140.00 price target, despite expected gross margin headwinds from a greater mix of AI servers and inflationary component costs.
Analysis:
Dell Technologies Inc. (DELL) is making strategic moves to capitalize on the growing AI server market, positioning itself for future growth and innovation. With Mizuho initiating coverage with an Outperform rating and a price target of $135, investors are optimistic about Dell's potential in this space. Despite challenges faced by the current market leader, Super Micro Computer, Inc., Dell's diverse portfolio and strong financial health make it a favorable investment option. As the AI server market continues to expand, Dell's market performance and growth potential make it an attractive choice for investors seeking long-term gains.