Barclays downgraded Dell Technologies, Hewlett Packard Enterprise, and NetApp to Equal Weight from Overweight in a Wednesday note, citing valuations that have advanced too far without a corresponding inflection in enterprise AI adoption. The bank's analyst, Tim Long, noted that the seven enterprise-exposed stocks in his coverage have risen an average of approximately 140% this year, significantly outpacing the 14% gain in the S&P 500. Consequently, the group now trades at about 21 times estimated 2027 earnings, a multiple well above its five-year average of around 15 times.
Dell shares have climbed more than 300% this year. Long attributed a substantial portion of this increase to the company's ability to offset memory cost inflation through price increases. Dell's guidance projects revenue growth of just over 100% in enterprise servers and mid-teens growth in storage and consumer devices. However, Long expects a meaningful deceleration in growth over the next two years as memory prices normalize and potentially decline.
The analyst characterized AI servers as a successful business segment for Dell, with operating margins stabilizing at about 5%. His model projects AI server revenue will triple to $75 billion this fiscal year. Long indicated he would not be surprised to see upside to his $100 billion estimate for fiscal 2028, although he anticipates growth will slow. Additionally, Dell has reduced operating expenses as a share of revenue from 15.6% in fiscal 2024 to an estimated 8% in fiscal 2027.
While Long sees potential upside to earnings estimates, he expects the scale of earnings beats to become much smaller, which may limit further stock gains. Barclays cut its price target for Dell stock to $574 from $603.