Bank of America lowers Dell stock target price due to rising memory costs

Investing.com - Bank of America believes that rising memory prices will put short-term pressure on Dell Technologies’ profitability, prompting the bank to cut its target price from $150 to $135 per share in a Monday report, while reaffirming a buy rating.

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Analyst Wamsi Mohan wrote, “The upcoming memory pressure could overshadow what should be a strong Q4 performance,” with memory costs currently up 140% year-over-year, compared to about 40% previously.

According to Bank of America, updated models show that gross margin in fiscal 2027 could be impacted by 489 basis points, operating margin by 262 basis points, and earnings per share could be reduced by $2.48.

Mohan emphasized that these calculations represent a ceiling scenario and noted, “The actual impact will be smaller because Dell is pushing for further operational expense efficiencies, supply chain management, alternative component sourcing, and strategic pricing.”

Bank of America currently expects earnings per share of $10.00 for fiscal 2027, down from the previous estimate of $10.86.

The bank stated that both the Infrastructure Solutions Group and Customer Solutions Group will face margin pressures, with models showing profit margins in each segment declining by over 300 basis points.

The Infrastructure Solutions Group should be more resilient because its product portfolio is “more ‘mission-critical’,” and demand remains strong, resulting in a smaller year-over-year decline. In contrast, the Customer Solutions Group’s margins may face some short-term pressure as Dell manages “pre-signed contract pricing.”

Bank of America said Dell’s long-term profitability remains intact, supported by the proliferation of enterprise AI applications, the growth of emerging AI PCs, and increased add-on rates for the company’s storage intellectual property.

Nonetheless, soaring component costs introduce uncertainty into the guidance for fiscal 2027.

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