On Monday, JPMorgan (NYSE:JPM) adjusted its outlook for Dell Technologies Inc (NYSE:DELL) shares, increasing the price target to $155 from the previous $125 while maintaining an Overweight rating on the stock. The move reflects a positive stance on the company's prospects in artificial intelligence (AI) markets, including servers, storage, and PCs.
The firm's analyst noted that Dell's stock is currently trading at a price-to-earnings multiple of 19 times next twelve months (NTM) estimates, which is more than double its historical average.
Despite this high valuation, the analyst believes that the company's involvement in AI could continue to drive the stock's performance in the medium term.
This optimistic view comes ahead of Dell's earnings announcement, where the company is expected to meet a "high bar" set by its AI server revenues and backlog, as well as by recent significant customer wins.
JPMorgan anticipates that Dell will report strong AI-related revenues throughout the year, aided by better availability of graphics processing units (GPUs). This is expected to lead the company to increase its full-year guidance following a forecasted first-quarter beat.
However, the analyst cautions that the stock's earnings multiple might retract post-earnings to a level that, while still at a premium, is lower than the current 19 times multiple.
Looking ahead, JPMorgan projects that Dell will expand its revenues by approximately 9% year-over-year, not taking into account the decline in non-profitable VMware (NYSE:VMW) reseller revenue in FY25. The firm further expects revenue acceleration in FY26, driven by a macroeconomic recovery and increasing AI server revenues into FY26 and FY27.
This projected growth exceeds Dell's previous medium-term target of 3%-4% and supports the premium earnings multiple of 17 times that JPMorgan attributes to Dell for the revised December 2024 price target of $155.
InvestingPro Insights
As Dell Technologies Inc (NYSE:DELL) garners attention from JPMorgan with an updated price target, real-time data from InvestingPro provides additional context to the company's financial standing. With a market capitalization of $106.23 billion, Dell's presence in the technology sector is substantial. The company's P/E ratio, as of the last twelve months leading up to Q4 2023, stands at 28.27, which is a key metric indicating the company is trading at a low P/E ratio relative to near-term earnings growth, as highlighted by one of the InvestingPro Tips. This aligns with JPMorgan's analysis of the stock's performance potential.
Investors may also find Dell's notable returns over various time frames compelling. The company has seen a significant return over the last week of 14.13%, and a remarkable year-to-date price total return of 97.09%. These figures underscore the company's strong performance in the short term, which is also reflected in the substantial one-year price total return of 219.74%. This performance trend is a testament to Dell's robust position in the Technology Hardware, Storage & Peripherals industry, another point emphasized in the InvestingPro Tips.
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