Dell latest to enjoy speculative soar as AI bubble builds

Now that traders are drinking the Kool-AI-d, companies can either fuel the hype or face the consequences

Comment Dell's share price surged sharply on Wednesday as market analysts telegraphed their confidence in the OEM's ability to capitalize on the AI market.

Like so many server makers at the center of the AI boom, the rapid rise in Dell's share price has little tangible basis. Dell execs hadn't issued fresh pre-earnings revisions or guidance. Instead, the rally appears to have been fueled almost entirely by speculation, which we understand may be shocking to some readers.

On Wednesday, Morgan Stanley analyst Erik Woodring revised his price target for Dell from $128 per share to $152 calling it a top pick, according to a research note obtained by CNBC.

Woodring expressed confidence in Dell's prospects as an AI infrastructure vendor adding that he expected server orders to drive $10 billion in revenues during system builder's 2025 fiscal year.

The reason for his bullish position: positive words-on-the-street vibes apparently. "All-in, we are hearing about more AI server momentum at Dell than at any other OEM," he wrote.

To be fair, Dell has expanded its high-end systems considerably over the past few years. Like most OEMs, the bulk of its AI lineup centers around GPU juggernaut Nvidia, with both its current-gen Hopper generation GPUs already available and it plans to ship next-gen Blackwell parts when they arrive later this year, or early next. The OEM has also committed to carrying Intel's competing Gaudi3 accelerators and AMD's MI300X GPUs.

The diversity of Dell's AI portfolio should help the system builder secure new orders even in spite of supply constraints, which have reportedly plagued Nvidia hardware.

To this end, during Dell's Q4 earnings call in February, the COO Jeff Clarke touted growing demand for AI servers, saying demand increased 40 percent since the prior quarter.

"We shipped $800 million of AI-optimized servers, and our backlog nearly doubled sequentially, exiting the fiscal year at $2.9 billion. Demand continues to outpace GPU supply," he said according to a transcript.

"We are also seeing strong interest in orders for AI-optimized servers equipped with the next generation of AI GPUs, including the H200 and the MI300X."

As to how well this ramp is actually playing out, we'll have to wait until Dell presents its Q1 financial results later this month. However, investors trying to divine the market direction from whispers and market analysis won't have to wait that long to get a bead on the health of the AI market.

Nvidia is due to present its Q1 2025 fiscal results next Wednesday. As the heavy weight of the AI infrastructure world, the expectations are riding high on the chipmakers performance.

Reading the AI tea leaves

Over the past few months we've seen wild swings in the share prices of infrastructure and software vendors as investors attempted to read the tea leaves of the generative AI market.

Like Dell's rally this week, many of these swings are often based more on the confidence of the market than reality. Last month, ahead of Alphabet, Microsoft, and Meta's earnings disclosures, Nvidia's stock price inexplicably plunged. Why? Super Micro, a leading supplier of GPU servers, hadn't released its preliminary results as expected, spooking investors.

Those fears turned out to be unwarranted as just a few days later Supermicro revealed quarterly revenues triple that of the year ago quarter. Despite an otherwise outstanding quarter, Supermicro's earnings and outlook, wasn't enough to satiate AI crazed investors who apparently had expected even stronger gains.

However, Supermicro is far from the only company to fall prey to this mismatch in expectations versus reality. Meta's stock price took a beating after CEO Mark Zuckerberg reality checked investor expectations about the realities of AI product development.

In a call with analysts the Zuck warned that it would take multiple years before Meta's AI business began driving profits. His comments sparked fears over Microsoft, Alphabet's, and Apple's earnings. However, it seems these players were able to avoid similar sell offs by offering up massive stock buybacks and hefty dividends to the market. ®

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