Dell Technologies Shares Surge Following S&P 500 Re-Inclusion

Shares of Dell Technologies (NYSE:DELL) jumped 6.1% in pre-open trading on Monday after the company announced its re-inclusion in the S&P 500 index, starting September 23.

The announcement was made after market close on Friday, September 6, confirming that Dell will officially rejoin the index. Dell was part of the S&P 500 from 1996 to 2013 before going private, and its return signifies renewed market confidence.

Analysts at Citi Research view this re-inclusion as a significant milestone. They believe “DELL shares can continue to work post-inclusion,” driven by several catalysts: recovery in general purpose infrastructure demand, an upcoming PC refresh cycle through CY25, AI momentum, and capital returns.

Citi maintains a “buy” rating due to Dell’s strong fundamentals and an appealing risk/reward profile. While inclusion in the S&P 500 is a catalyst, it’s part of a broader positive outlook for the company.

Key supporting factors for this optimism include:

1. Expected Recovery in Infrastructure Demand: Dell’s server and storage sectors are anticipated to benefit as businesses invest in critical infrastructure.
2. Global PC Refresh Cycle: Upgrades of aging PC systems will likely boost revenue, especially in personal computing, continuing into 2025.
3. AI Solutions Demand: Dell’s focus on AI solutions is becoming crucial for companies needing computing and storage resources, driving potential revenue growth.

Citi has set a target price of $160 for Dell, applying a 9.8x EV/EBITDA multiple to projected earnings. This reflects confidence in Dell’s execution amid emerging trends, like the expanding AI market. Dell’s valuation aligns with peers who have a median EV/EBITDA multiple of 10.1x, considering sustainable margins and growth rates.

However, challenges remain. Dell faces competitive pressure from hyperscalers and cloud computing options that disrupt traditional enterprise demand. These providers prefer lower-margin hardware, creating pricing pressure on Dell. Furthermore, the shift toward cloud-enabled infrastructure raises concerns about market share loss and margin compression for Dell’s storage business.

Uncertainty also lingers regarding the speed of recovery in PC and data center demand. Delays in the refresh cycle could adversely impact sales, and the expected AI backlog may not convert into revenue as quickly as anticipated.

Despite these risks, Dell’s S&P 500 re-entry, combined with its growth opportunities, make a compelling case for investors. With infrastructure demand recovery, a forthcoming PC upgrade cycle, and strong AI positioning, Dell seems poised for continued success.