Dell Technologies (DELL) remains the "best athlete" among enterprise hardware companies and is best positioned to benefit if on-premises artificial intelligence adoption accelerates, Morgan Stanley said in a note Monday.
The company delivered a convincing earnings beat as demand for its AI servers continued to increase.
Morgan Stanley said the company has an additional growth opportunity if businesses begin running more AI workloads in their own data centers rather than relying primarily on cloud infrastructure.
The company is also gaining ground in storage. Dell recorded the largest revenue market-share gain among external storage equipment makers in Q2, according to industry data cited by Morgan Stanley.
However, investors are increasingly questioning the "duration" of the enterprise hardware "cycle." Despite average fiscal 2027 earnings estimate increases of 12% across the sector, price-to-earnings multiples contracted by about one turn, the note said.
Morgan Stanley maintained an equal weight rating on Dell, while raising its price target to $511 from $499, saying Hewlett Packard Enterprise (HPE) offers a more attractive longer-term setup because its "higher margin networking" business could support earnings as server growth slows.
A Sept. 22 meeting with Dell's chief operating officer is expected to be the company's next major catalyst, according to the note.
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