Morgan warns that Nvidia's BlackRock will hurt Dell's AI server production before its earnings report
AInvestThursday, Aug 29, 2024 10:10 am ET
1min read
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Dell (DELL.US) will report its second-quarter earnings after today's trading session. Ahead of the release, Morgan Stanley published a report stating that Dell's AI server build plans for fiscal 2024-2025 will face a downgrade due to shipment delays and project extensions. Despite this, Morgan Stanley maintains its "Overweight" rating on Dell but slightly lowers its target price from $142 to $136.

The team led by analyst Eric Woodring found in recent market research that the production of Dell's PowerEdge 9680/9680L AI servers is expected to be between 37,000 and 38,000 units in 2024, down from the previous estimate of about 48,000 units. The analysts emphasize that the adjustment in expectations is mainly due to project delays, including Nvidia's Blackwell project, rather than a reduction or cancellation of AI server projects, competitive losses, or market share loss.

The research also showed that Dell's AI server demand based on the Hopper architecture has recently increased. For fiscal 2025, Morgan Stanley's analyst team now expects AI server shipments to be 38,000 units, down from the previous 44,000 units, leading to a 1% decrease in its revenue and EPS forecasts for fiscal 2025 to $96.5 billion and $7.84, respectively.

The analysts noted that the decline in the outlook for AI server construction and shipments in the second half of fiscal 2025 is due to three factors: weakening demand for AI servers based on the Mi300x; a deeper understanding of the impact of the Blackwell project delay (which is not unique to Dell); and a slight delay in some Hopper orders. They said that based on feedback received, the Nvidia Blackwell delay was the single largest factor driving the downgrade in Dell's AI server construction outlook in the second half of the year.

Moreover, the weak demand for AMD-based Mi300x AI servers may suggest that Nvidia's products are gradually eroding AMD's market share.

Overall, despite some short-term challenges, Dell's long-term prospects in the AI server market remain attractive to investors. Morgan Stanley's report reflects some market concerns about Dell in the short term, but it does not change its positive view on the company's long-term growth potential.

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