UBS: Dell's AI server demand is strong, and the non-AI terminal market is expected to recover in the fiscal year 2026

Among global tech giants, Dell Technologies is experiencing a pivotal moment filled with challenges and opportunities. On the 28th, UBS released its latest research report, indicating that despite recent pressures in the PC market, demand for Dell's artificial intelligence servers appears particularly strong. Dell's robust performance in the AI server sector will become a core driver of its future revenue growth. It is expected that in the fiscal year 2026, AI server revenue will reach at least $15 billion, a year-on-year increase of over 50%, significantly higher than UBS's previous estimate of $13 billion. This growth is primarily attributed to the rapid development of AI technology and the increasing market demand for high-performance computing. UBS analysis states that although the growth of the AI server business will lead to a year-on-year decline in Dell's gross margin of about 100 basis points, the revenue growth from AI servers will significantly enhance the company's operating income. UBS pointed out that although Dell's first-quarter earnings per share (EPS) guidance was slightly below market expectations, the company secured nearly $5 billion in new orders by the end of the quarter, bringing the overall order backlog to $9 billion, reflecting a rebound in customer confidence in AI hardware. Strong Growth in AI Server Business, UBS Raises Target Price to $150 Dell's fourth-quarter financial report released on the 28th showed revenue below expectations and earnings above expectations: Revenue for the quarter increased by 7.2% year-on-year to $23.9 billion, below the consensus estimate of $24.6 billion from analysts. After excluding certain items, the adjusted earnings per share was $2.68, compared to the market expectation of $2.53. Net profit rose from $1.21 billion in the same period last year to $1.53 billion, with earnings per share increasing from $1.66 last year to $2.15. Considering the overall market changes, UBS made moderate adjustments to its revenue and EPS estimates for Dell in 2026. Specifically, it is expected that revenue for the fiscal year 2026 will be revised up from $102.3 billion to $103.9 billion, while EPS is also slightly increased to $9.31. These changes reflect Dell's flexibility and resilience in continuous innovation and responding to market challenges. Among these, the rapid growth in AI demand is particularly important for Dell's financial performance. Although Dell's EPS expectation for the first quarter of fiscal year 2026 is $1.65, lower than the market expectation of $1.78, UBS believes that Dell's initial performance guidance is usually conservative, and historical data shows that its actual performance often exceeds expectations. “We believe any weakness should be viewed as a buying opportunity, as the company's initial guidance has always been conservative.” UBS has lowered Dell's target stock price from $158 to $150, mainly due to a slight adjustment in free cash flow (FCF) expectations and a minor adjustment in the price-to-earnings ratio. Nevertheless, Dell's current stock price still has significant upside potential. As of the market close on February 27, Dell's stock price was $107.83, and UBS expects its stock price to rise by approximately 39.1% over the next 12 months, reaching the target price of $150.