Goldman Sachs: After visiting Dell's headquarters, it further recognizes the technological advantages of its AI servers

Dell is solidifying its important position in the AI infrastructure field. Earlier this year, Dell reached a $5 billion agreement with Musk's xAI to provide advanced AI servers to support the startup's next-generation AI computing workloads. Dell has also recently signed an agreement with AI hyperscale service provider CoreWeave to deliver high-performance server racks to support its rapidly expanding cloud service platform. On Thursday, a team of Goldman Sachs analysts led by Michael Ng visited Dell's headquarters in Round Rock, Texas. They met with several Dell executives, including Arthur Lewis, President of the Infrastructure Solutions Group, and Paul Frantz, Head of Investor Relations, to gain deeper insights into Dell's rapid innovation and execution capabilities in the AI infrastructure field. Ng told clients: “This on-site visit gave us a deeper understanding of Dell's engineering and design capabilities for AI servers, which we believe is its core competitive advantage in the market.” The analysts' main conclusion is: Dell has successfully established its dominant position in the AI infrastructure field, leveraging world-class engineering strength, deep collaborative relationships with customers and suppliers, and the growing demand for AI servers—currently, its backlog of advanced servers has reached $14.4 billion. Analysts noted that Dell's engineering and design capabilities are outstanding. Following the shipment of the first NVIDIA GB300 NVL72 servers on July 3, just seven months after the earlier shipment of the first GB200 NVL72, the analysts' on-site visit to the AI lab further deepened their understanding of Dell's leading capabilities. Dell equips AI customers with dedicated teams composed of thermal, networking, storage, and system architects ("pods") to closely collaborate with customers to meet the evolving AI demands. Dell can also design and deliver multiple customized components to meet specific scenario needs, supported by its top-notch supply chain management. Additionally, Dell works closely with key suppliers to proactively plan for new product deliveries, gaining operational leverage as revenues expand. At the same time, Dell's AI lab and first fiscal quarter (F1Q26) results show strong demand for AI servers: In the last quarter, Dell recorded $12.1 billion in AI server orders, with backlog orders increasing to $14.4 billion. Although Dell has converted the $12.1 billion in orders into sales, its orders continue to expand, reflecting sustained strong demand for AI systems. While government customers from sovereign nations have contributed to the growth, the primary demand still comes from second-tier cloud service providers (CSPs). Analysts communicated with several AI team members in the lab, gaining a deeper understanding of the complex factors involved in server execution, including cooling, rack design, power, wiring, networking, and software. Moreover, Dell's traditional server upgrades continue, and there has been progress in its storage business: 70% of Dell's traditional installed base still consists of 14th generation or earlier products, indicating a significant upgrade opportunity. Enterprises are also attempting to integrate data center equipment to optimize power and cooling efficiency. Although traditional servers have achieved year-over-year growth for six consecutive quarters, the growth has primarily come from price and configuration increases rather than shipment volume, indicating that most equipment remains outdated Although the storage business has been affected by the gradual phase-out of VXRail products, Dell's self-developed technology has driven storage revenue to grow for three consecutive quarters, particularly making positive progress in private cloud, AI, and security fields. Goldman Sachs maintains a "Buy" rating on Dell and raises the 12-month target price from $130 to $140. However, despite the bright fundamentals, the technical trend of Dell's stock price over the past 18 months remains concerning: after peaking at $179 in the first half of 2024, the stock price has shown an overall downward trend and continues to form a series of "lower highs."