Wells Fargo Maintains Overweight Rating on Dell Despite AI Server Margin Concerns

Wells Fargo maintained its Overweight rating on Dell Technologies, despite a decline in the stock following Q2 FY 2026 earnings. The firm reduced the price target from $160 to $150, citing persisting concerns over AI server margin pressures. However, Wells Fargo believes Dell is a buyer on a pullback, noting a strong AI server backlog of $11.7 billion at the end of the quarter.

Wells Fargo has maintained its Overweight rating on Dell Technologies (DELL), despite a decline in the stock following Q2 FY 2026 earnings. The firm reduced its price target from $160 to $150, citing persisting concerns over AI server margin pressures. However, Wells Fargo believes Dell is a buyer on a pullback, noting a strong AI server backlog of $11.7 billion at the end of the quarter.

The decision to maintain the Overweight rating is based on the firm's belief in Dell's strong demand for AI servers and its position as the world's No. 1 provider of AI infrastructure. The company's AI server business is expected to continue growing, driving long-term profit growth.

Dell Technologies reported its second-quarter fiscal 2026 financial results, which exceeded market expectations, with revenue and profit both surpassing analyst estimates [1]. However, the stock price fell by more than 5% in after-hours trading following the release of its third-quarter earnings per share guidance, which was below analyst expectations.

The company experienced a significant quarter-on-quarter decline in AI server orders and infrastructure gross margins that fell short of analyst predictions [2]. Despite these setbacks, Dell Technologies' AI server business has been a key driver of growth, with the company forecasting annual AI server shipments to reach $20 billion, doubling year-on-year [2].

Dell Technologies' Infrastructure Solutions Group (ISG) revenues increased 44% year over year to $16.80 billion in the second quarter of fiscal 2026, marking six consecutive quarters of double-digit growth. Servers and networking revenues of $12.94 billion grew 69% year over year, highlighting the strength across both artificial intelligence (AI) and traditional server markets [3].

Wells Fargo analysts have noted the strong demand for AI servers and the company's position as the world's No. 1 provider of AI infrastructure. They believe that the company's AI server business will continue to grow, driving long-term profit growth. The analyst team maintained a buy rating on Dell Technologies, with a price target of $160, reflecting their bullish outlook on the company's future performance [3].

Dell Technologies is facing stiff competition in the server space against the likes of Hewlett-Packard HPE and Super Micro Computer SMCI. However, the company's leadership in AI-optimized servers is a key driver of growth. The company shipped $8.2 billion in AI servers in the second quarter of fiscal 2026 and raised its full-year AI server shipment guidance from $15 billion to $20 billion, highlighting the sustained demand for AI-driven solutions [3].

Dell Technologies' shares have gained 5% year to date, underperforming the broader Zacks Computer & Technology sector's return of 13%. The Computer - Micro Computers industry declined 6.9% in the same time frame. Dell's shares are cheap, with a forward 12-month Price/Sales of 0.75X compared with the Computer & Technology sector’s 6.59X. The consensus mark for fiscal 2026 earnings is pegged at $9.49 per share, which has increased 0.42% in the past 30 days. This suggests 16.58% year-over-year growth. Dell Technologies Inc. Price and Consensus Dell Technologies Inc. price-consensus-chart | Dell Technologies Inc. Quote DELL currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.

References:
[1] https://stockanalysis.com/stocks/dell/
[2] https://news.futunn.com/en/post/61346716/dell-technologies-revenue-and-profits-exceeded-expectations-but-ai-server
[3] https://seekingalpha.com/article/4279472-dell-technologies-picks-up-steam-in-ai-server-sales