Dell: We Are Pleased With 2023 Analyst Day but Continue to See Shares as Rich

We maintain our $46 fair value estimate for shares of no-moat Dell Technologies DELL after a positive and succinct analyst day. Dell’s management team largely emphasized consistency in its approach going forward. Dell is prioritizing maintaining its leading market shares across PCs, servers, and storage, generating added growth from artificial intelligence, or AI, and further committing to shareholder returns. We’re skeptical of some growth targets for infrastructure products that we view as lofty, but we like the augmented commitment to the dividend and buyback programs. Shares dipped modestly during the analyst day, but we continue to see the stock as overvalued. We like Dell’s strategy, but the stock has outpaced its fundamentals over the past six months, in our view, due to overexuberance over AI and preemptive excitement over end market rebounds.

Dell mainly reiterated its existing strategy pillars of growing its market shares across its core markets. In its infrastructure segment, the company is still focused on supporting hybrid cloud approaches at enterprises. Dell is leaning heavily into AI as a driver of higher enterprise spending and cited an IDC projection for 50% of total GPU spending in the long term to be in on-premises data centers or at edge applications, which was bullish to us. In its client segment, Dell is focused on supporting a comprehensive suite of solutions around PCs, with an emphasis on peripherals. We expect Dell to continue to focus on the premium end of this market, particularly commercial and gaming PCs and accessories.

Dell updated its long-term financial targets to include higher growth, higher profitability, and greater shareholder returns. We view the higher growth target, particularly in the infrastructure business, as dubious but view margin targets as attainable and support the higher shareholder return goal.