.August 13, 2024 12:11 PM

Barclays upgraded Dell Technologies (NYSE:DELL) from Underweight to Equal Weight due to reduced AI-related hype, leading to a 5% share price increase. The firm believes downside risk has decreased, but remains cautious about Dell’s core business segments like enterprise servers and PCs. Concerns were raised about the sustainability of AI revenues and profit margins. Dell’s stock dropped 34% since Q1 earnings report, reflecting market apprehensions. Barclays noted strong AI orders but highlighted competitive market and rising receivables from low-quality customers.

Barclays estimates Dell’s AI servers have low gross margins, around 12.5% or less, making them less profitable. The bank has not seen significant benefits from AI technology in other business areas. Despite concerns, Dell’s AI business commands a higher valuation multiple compared to peers like HPE and HPQ. Barclays acknowledges the challenges in the PC and traditional server markets cannot be fully offset by the AI business alone. The reassessment led to the upgraded rating, as Barclays believes their earlier Underweight thesis has largely played out.