Despite the strong demand for AI servers, investors are re-evaluating valuations and questioning whether the company's expenditures can support the growth expectations that have already been factored into the stock price of the hardware company.

Barclays downgrades rating; demand for AI is under scrutiny

Barclays analyst Tim Long downgraded Dell's rating from 'overweight' to 'neutral', and reduced the target price from $603 to $574. This move reflects his concern that the company's AI spending acceleration may not be sufficient to support further gains in hardware stocks.

This analyst also pointed out the impact of rising memory prices on hardware revenue. Higher component costs may drive up reported revenues, but this does not necessarily mean that there is a stronger demand for server shipments or an improvement in profitability.

Has the cost of memory masked the slowdown in growth?

The core issue Dell faces is whether its revenue growth reflects a sustained demand for AI infrastructure, or whether it is driven by rising prices of components. Memory costs are increasing across the entire hardware industry, which while supporting revenue, may also complicate profit margin performance. If prices return to normal and the company's AI adoption rate remains below expectations, revenue growth could slow down.

This risk does not mean that the AI craze has ended. On the contrary, investors hope to see more conclusive evidence that companies are expanding their AI deployments at a pace sufficient to support current growth expectations.

The broader market environment has also increased the pressure. Higher inflation has reignited concerns about interest rates, which could raise the financing costs for companies building data centers and expanding the computing power capacity of AI.

Dell's $95 billion AI backlogged orders provide support

Dell also disclosed that AI orders reached $60.9 billion, AI optimized server revenue was $16.4 billion, and AI backlogged orders set a record of $95 billion. The company has raised its full-year revenue forecast for the fiscal year 2027 to $192 billion. These figures highlight Dell's position in the AI infrastructure market, as cloud service providers and enterprises continue to invest in systems for training and running AI models.

However, an increase in backlogged orders does not necessarily equate to an increase in profits. Delivery times, component costs, pricing pressures, and customer spending plans will determine how much of this demand can ultimately be converted into sustainable profitability and cash flow.

Dell Stock Analysis: What's Next?

If the channel is broken down, the range of $460 to $465 could become a downward reference point; if the stock price recovers above $530 to $545, it may indicate an improvement in momentum. The Relative Strength Index has weakened, but it does not seem to be in a state of severe oversold conditions, which means there is still room for further weakness. To achieve a sustained rebound, it is necessary to regain the nearby resistance levels; if the channel is confirmed to be broken down, Dell may face a broader correction.