Can AI help old IT players evolve?

introduction

IBM (IBM) was founded in 1911 and was nicknamed “Big Blue” because it was one of the original blue-chip stocks.

In recent years, IBM has transformed its business through a series of acquisitions, including a $6.4 billion deal for Hashicorp (HCP) that is expected to close before the end of the year.

Dell (DELL) was founded in 1984 and is much younger. After years of selling personal desktop computers and laptops, the company has slowly transitioned into offering business 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 be worth $430 billion, nearly 14 times its 31 valuation billion in 2023. Dell and IBM were named in the report released in October alongside companies like Hewlett Packard Enterprise (HPE) and Nvidia (NVDA). Major players named in the market.

This stock spotlight looks at how Dell and IBM are reinventing themselves to become major players in the enterprise AI space and how this has boosted their recent financial performance. It also examines 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 has chosen Advanced Micro Devices (AMD) to provide accelerators for the IBM Cloud.

“Using the AMD accelerators on IBM Cloud provides our enterprise customers with another opportunity 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, said in a press release.

Dell also made a big announcement this week, expanding its AI Factory portfolio to include tools from Microsoft (MSFT).

According to Jon Siegal, senior vice president of product marketing at Dell, these offerings should “help companies innovate faster, control costs and protect their data more effectively.”

Dell stock outperforms IBM stock

Dell’s push into AI, particularly its partnership with Nvidia, has helped DELL stock gain 91.44% this year through Nov. 21. However, the stock has fallen 19.75% from its 52-week high of $179.70 hit on May 29.

While IBM’s stock price is only up 41.26% year-to-date, this is an impressive increase considering IBM stock has been a chronic underperformer, gaining 119.89% over the past five years. IBM shares reached an all-time high of $237.37 on October 15.

AI software and server demand drive sales

IBM shares fell after reporting third-quarter 2024 results on Oct. 23 that showed weak revenue growth of just 1%, below analysts’ expectations.

Software revenue rose 9.7% to $6.5 billion, with Red Hat’s software revenue increasing 14%. However, this was offset by a 7% decline in infrastructure business to $3 billion, while consulting revenue fell 0.5% to $5 billion.

IBM boss Arvind Krishna expects “continued strong” software sales in the current quarter.

Dell reports its Q3 2025 results after the market closes on Tuesday, but when it last reported in August, demand for AI servers rose 23% from the previous quarter to $3.2 billion. “Our AI momentum accelerated in the second quarter, and we saw an increase in the number of enterprise customers purchasing AI solutions each quarter,” said Jeff Clarke, Dell’s chief operating officer.

Meanwhile, HPE’s server business beat expectations in the fiscal third quarter thanks to AI systems revenue of $1.3 billion, up 39% quarter-over-quarter. However, the stock fell following the September 4 report on weak AI server margins.

How to compare Dell, IBM and HPE fundamentals:

Source: Yahoo Finance

One could say that the lower P/E ratios and higher revenue growth of DELL and HPE stocks make IBM stock appear slightly overvalued.

DELL stock and IBM stock: The investment case

The bull case for Dell and IBM

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

In a note to customers seen by Investor’s Business DailyDaryanani said the acquisitions of HashiCorp and Red Hat could significantly increase revenue in 2025, assuming the macroeconomic environment remains stable. Evercore has forecast that IBM could achieve 5% revenue growth, compared to the 2% forecast for 2024.

Dell received a price target hike from Mizuho last week, raising it from $135 to $155, a rise of 7.48%. In a note to clients reiterating the “Outperform” rating, analysts said Dell should see growth in AI servers with “significant ramp-up activity” in the second half of 2025.

The bear case for Dell and IBM

With concerns over Trump’s proposed China tariffs impacting U.S. stocks in recent weeks, Bernstein analyst Toni Sacconaghi named Dell as one of the companies whose profits could be affected by the measure.

In a note to customers seen by I’m looking for alphaSacconaghi explained that if Dell raised its prices by 20% in response to the proposed tariffs, Dell’s earnings per share could fall by up to 90% in a worst-case scenario due to low gross margins.

However, IBM would likely be protected from any risks as its EPS would potentially suffer a small 2% decline.

Diploma

Dell and IBM may not be the first stocks investors think of when investing in AI, but both could prove to be stable investments in the theme compared to the “magnificent seven.” The two tech companies are expected to benefit from increasing corporate demand for AI servers and software, but could face tariff-related headwinds in the near term.

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