Barclays downgrades Dell stock after sharp rally

Barclays downgraded Dell Technologies, Hewlett Packard Enterprise and NetApp to Equal Weight from Overweight in a note on Wednesday, saying valuations have run too far and it sees no meaningful enterprise AI inflection yet.

Analyst Tim Long said the seven enterprise-exposed stocks in his coverage are up an average of about 140% this year, against a 14% gain for the S&P 500. The group now trades at about 21 times estimated 2027 earnings, well above its five-year average of around 15 times.

Dell shares have climbed well over 300% this year. Long said much of that reflects how well the company has offset memory cost inflation by raising prices, with guidance calling for just over 100% revenue growth in enterprise servers and mid-teens growth in storage and consumer devices.

“As a result, we expect a meaningful deceleration in growth over the next two years and memory price normalize and potentially decline,” he wrote.

The analyst said AI servers have been a successful business for Dell, with operating margins stabilizing at about 5%. His model has AI server revenue tripling to $75 billion this fiscal year, and he would not be surprised to see upside to his $100 billion estimate for fiscal 2028, though growth should decelerate.

Dell has also cut operating expenses as a share of revenue from 15.6% in fiscal 2024 to an estimated 8% in fiscal 2027.

Long still sees upside to earnings estimates, but that “the scale of the beats should become much smaller,” which may limit further gains. Barclays cut its Dell target to $574 from $603.

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