Dell to benefit from AI demand as new orders offset lower margin

Investing.com -- Dell is expected to deliver a stronger earnings outlook on the back of strong AI server demand, with JPMorgan saying the revenue lift from new orders should outweigh the drag from a lower margin mix.

JPM has placed the stock on its Positive Catalyst Watch ahead of the company’s third quarter results.

Analysts said near term demand from Tier 2 cloud providers and large enterprises remains solid, with AI server momentum broad enough to support guidance for both the October quarter and the following period.

JPM noted that investors have questioned the durability of AI spending, a concern that has pushed Dell’s valuation slightly below its recent average, but said upcoming revenue and earnings beats should ease those worries.

Brokerage expects Dell to guide to stronger revenue for the January quarter, helped by a larger pipeline of AI servers and steadier PC shipments.

It says Dell’s AI server shipments are set to rise next year, with NVL72 rack volumes expected to double in 2026, suggesting the company maintains stable share in a growing market.

For the October quarter, the brokerage forecasts revenue of 27.6 billion dollars, above consensus, driven by AI server demand and modestly better PC trends.

Margins are expected to be flat, with gross margin at 20.4 percent and operating margin at 8.9 percent, resulting in projected earnings of 2.50 dollars per share.

For the January quarter, JPMorgan expects revenue of 29.4 billion dollars, well above consensus, again led by AI servers.

Margins are projected to soften due to the mix but still produce earnings ahead of expectations at 3.33 dollars per share.

JPMorgan raised its earnings estimates for the back half of the fiscal year and increased its AI server revenue forecasts for 2025 and 2026, saying the stronger top line should more than offset pressure from higher memory costs and a larger contribution from lower margin AI systems.