Shares in Dell climbed in premarket trading.
Dell Technologies reported expectation-beating financial results driven by demand for its artificial-intelligence servers - and analysts say "blowout" quarters like this should continue.
The Round Rock, Tex.-based company said revenue for the second quarter rose 59% from a year ago to $47 billion, higher than analysts' forecasts of $44.9 billion, according to FactSet. It announced that revenue in its AI server business doubled year-on-year to $16.4 billion after the unit booked $60.9 billion in orders.
Shares in Dell (DELL) rose 9% in premarket trading to $463 following a fall of about 7% by Tuesday's close - before the company reported its results.
Morgan Stanley raised its price target for the stock from $434 to $499, outlining that as long as supply is tight and Dell's execution remains strong, these "blowout" quarterly reports are poised to persist.
Analysts at the investment bank, led by Erik Woodring, head of U.S. technology hardware equity research, wrote in a note Wednesday that the company's earnings make four things clear.
Firstly, they said, spending on AI is strong and appears to be long-lasting, noting that just four years ago, Dell did not have any AI-related revenue, whereas now its outlook is for $74 billion from its AI servers alone.
The analysts also wrote that its supply chain management - which they said is driving share gains in each market the company operates in - creates a clear competitive advantage.
"We are in the midst of a traditional server refresh cycle, despite significantly higher prices," Morgan Stanley put as its third factor. And finally, the analysts said demand staying inelastic for traditional servers has allowed for more margin capture.
Goldman Sachs also lifted its price target for Dell, bringing it up to $570 from a prior expectation of $510.
Analysts Katherine Murphy and Michael Ng said the change was partially owed to the build out of data centers likely supporting continued demand growth for enterprise IT hardware. They added that accelerated demand for Dell's AI servers and operating margin outperformance contributed to the upgrade.
Citigroup raised its target price for the stock from $515 to $600.
"Guidance embeds supply constraints leaving potential for upside," Asiya Merchant, director of tech equity research, wrote in a note Wednesday. "Momentum should sustain ahead, driven by infrastructure modernization and expanding enterprise AI adoption."
-Nora Redmond