DELL and IBM: Can AI Help Legacy IT Players Evolve?

Introduction

Founded in 1911, IBM [IBM] earned the nickname Big Blue in reference to it being one of the original blue-chip stocks. 

In recent years, IBM has been transforming its business through a number of acquisitions, including a $6.4bn deal for Hashicorp [HCP] that is expected to close before the end of the year.

Founded in 1984, Dell [DELL] is much younger. After years of selling personal desktop computers and laptops, the company has slowly transitioned to offering enterprise services. 

According to research firm Market.us, the global artificial (AI) server market will grow at a CAGR of 30.3% between 2024 and 2033, to a value of $430bn, almost 14 times its 2023 valuation of $31bn. Dell and IBM were named in the report, published in October, as key players in the market, alongside the likes of Hewlett Packard Enterprise [HPE] and Nvidia [NVDA]. 

This stock spotlight will discuss how Dell and IBM are reinventing themselves to become key players in the enterprise AI space and how this has boosted their recent financial performance. It will also look at some of the tailwinds and headwinds that could impact the two stocks in the near term. 

AI Announcements 

IBM announced on November 18 that it had chosen Advanced Micro Devices [AMD] to provide accelerators for IBM Cloud.

“Leveraging AMD’s accelerators on IBM Cloud will give our enterprise clients another option to scale to meet their enterprise AI needs, while also aiming to help them optimize cost and performance,” said Alan Peacock, General Manager of IBM Cloud, in a press release. 

Dell also made a big announcement that week, expanding its AI Factory portfolio with tools from Microsoft [MSFT].

According to Jon Siegal, Senior Vice President of Product Marketing at Dell, these offerings should help “organizations innovate faster, control costs and protect their data more effectively”.

Dell Stock Outpaces IBM Stock 

Dell’s push into AI, particularly its partnership with Nvidia, has helped DELL stock to rally 91.44% this year through November 21. However, the stock is down 19.75% from its 52-week high of $179.70 set on May 29.

While the IBM share price has only gained 41.26% year-to-date, this is an impressive rise considering that IBM stock has been a chronic underperformer, gaining 119.89% in the past five years. IBM stock recorded an all-time high of $237.37 on October 15. 

AI Software and Server Demand Boost Revenue

The IBM share price pulled back following its Q3 2024 results on October 23 that showed soft revenue growth of just 1%, below what analysts had been expecting. 

Revenue in its software business was up 9.7% to $6.5bn, with Red Hat software sales up 14%. However, this was offset by a 7% decline in its infrastructure business to $3bn, while consulting revenue fell 0.5% to $5bn. 

IBM CEO Arvind Krishna is expecting “continued strength” in software sales in the current quarter.

Dell delivers its Q3 2025 earnings after the bell on Tuesday, but when it last reported in August, AI server demand rose 23% sequentially to $3.2bn. “Our AI momentum accelerated in Q2, and we’ve seen an increase in the number of enterprise customers buying AI solutions each quarter,” said Dell Chief Operating Officer Jeff Clarke.

Meanwhile, HPE’s server business outperformed expectations in its fiscal Q3 thanks to $1.3bn in AI systems sales, a 39% jump from the previous quarter. However, the stock fell following the September 4 report on weak AI server margins. 

Here’s how Dell, IBM and HPE’s fundamentals compare:

Source: Yahoo Finance

DELL and HPE stocks’ lower P/S ratios and higher revenue growth could be said to make IBM stock look slightly overvalued. 

DELL Stock and IBM Stock: The Investment Case

The Bull Case for Dell and IBM

One of the reasons that IBM stock is currently trading at all-time highs is thanks to Evercore ISI analyst Amit Daryanani hiking his price target from $215 to $240, implying an upside of 7.64%, in September. 

In a note to clients seen by Investor’s Business Daily, Daryanani said that the acquisitions of HashiCorp and Red Hat could give sales a significant boost in 2025, assuming that the macro environment remains stable. Evercore has forecast that IBM could deliver revenue growth of 5% compared to the 2% projected for 2024. 

Dell got a price target boost from Mizuho last week, which raised it from $135 to $155, implying an upside of 7.48%. In a note to clients reiterating an ‘outperform’ rating, analysts said that Dell should see AI server growth, with a “significant ramp-up activity” in the second half of 2025. 

The Bear Case for Dell and IBM 

With concerns about Trump’s proposed China tariffs weighing on US equities over the past couple of weeks, Bernstein analyst Toni Sacconaghi has named Dell as one of the companies whose earnings could be affected by the move. 

In a note to clients seen by Seeking Alpha, Sacconaghi explained that if Dell hiked its prices by 20% in response to the proposed tariffs, then Dell’s EPS could be slashed by up to 90% in a worst-case scenario, due to its low gross margins. 

IBM, though, would likely be shielded from any risks, with its EPS possibly taking a marginal 2% hit. 

Conclusion 

Dell and IBM may not be the first stocks that investors think of when investing in AI, but both could prove to be a steady play on the theme compared to the ‘magnificent seven’. The two tech companies are poised to benefit from an increase in enterprise demand for AI servers and software, though they could face tariff-associated headwinds in the near term. 

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