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Dell’s Stock Price Plummets Over Concerns About AI Servers
On Friday, Dell faced a significant drop in its stock price, falling more than 20%. This decline was primarily driven by investor worries about the profitability of the company’s AI servers, which have not yet proven to be very lucrative.
Despite this financial setback, analysts at major investing firms remained optimistic about Dell’s overall AI strategy and long-term potential in the market.
Challenges and Concerns
Dell’s chief operating officer acknowledged during the company’s first-quarter earnings call that there is room for improvement in their profit margins. Additionally, Sanford Bernstein analyst Toni Sacconaghi raised concerns about the fact that Dell’s AI servers seem to be sold at extremely low margins, which could impact the company’s bottom line.
Analysts had anticipated that Dell would report a larger backlog for its high-performance servers equipped with Nvidia chips, specifically designed for AI applications. While the actual backlog of AI server orders reached $3.8 billion in the first quarter, it fell short of some expectations but still showed a healthy 30% growth.
Positive Outlook for the Future
Despite the current challenges, many analysts expressed confidence in Dell’s ability to increase its AI-related profits over time. Bank of America analyst Wamsi Mohan, for example, highlighted the strong pipeline and momentum around AI servers, suggesting that Dell could achieve higher AI margins in the future.
Several major investment banks, including Goldman Sachs, Wells Fargo, Morgan Stanley, Raymond James, and TD Cowen, raised their price targets for Dell’s stock on Friday morning. These new targets range between $155 and $175, indicating a positive long-term outlook for the company.
Although Dell’s stock experienced a 21% decline in midday trading on Friday, it managed to recover slightly and closed down about 18%, settling at around $139 per share. Nonetheless, the stock has shown an impressive 86% increase since the beginning of the year, reflecting investor confidence in Dell’s future growth.
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