Evercore ISI has maintained a positive outlook on Dell Technologies Inc. (NYSE: NYSE:DELL), reiterating an Outperform rating with a $140.00 price target.
The firm's analysis suggests that despite the expected gross margin headwinds from a greater mix of AI servers and inflationary component costs, Dell's operating margins could still expand due to offsets in other areas.
The analyst from Evercore ISI indicated that, although AI servers might lead to a significant year-over-year headwind to Infrastructure Solutions Group (ISG) gross margins in fiscal year 2025, prudent operational expenditure (opex) management and volume increases in the storage business should underpin margin growth.
The expectation is that even with a potential gross margin decline in fiscal year 2026, ISG operating margins will see a year-over-year increase of approximately 110 basis points, driven by improvements within the storage business.
Dell's management has set a long-term target for ISG margins between 11-14%, and Evercore ISI's framework suggests that margins should at least hit the lower end of this range, with potential to reach the higher end.
The firm believes that Dell is well-positioned to capitalize on the growth of AI deployments across various sectors, including tier 2 cloud service providers, sovereign entities, and enterprises.
In other recent news, Dell Technologies has reported robust growth in its recent earnings call, with a strong performance in its core businesses. The company's Client Solutions Group and Infrastructure Solutions Group have grown 12% and 38% respectively. Dell Technologies is focusing on expanding its presence in the artificial intelligence (AI) market, with a current $3.8 billion backlog in the AI space.
The company's strategy includes providing comprehensive infrastructure solutions to capitalize on the potential of AI to revolutionize productivity and efficiency across various industries. Dell Technologies remains focused on organic growth and disciplined capital allocation, with plans to return free cash flow to shareholders through dividends and share repurchases. The company is confident in its leading position in various businesses and positive market conditions.
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