Dell shares tumble 17% in two days after Barclays downgrade

The continued selling pressure is weighing on AI hardware linked to business spending, particularly affecting companies in servers, storage, and networking. The downgrade does not challenge the spending by top cloud and AI firms, so chipmakers and hyperscaler providers are more insulated. Memory prices are a crucial factor: any indication they are plateauing would intensify the negative outlook for hardware revenue. Since Dell shares are still significantly higher this year, investor positioning is crowded, increasing the likelihood of additional profit-taking until Dell's next earnings provide new data.

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This update comes as part of the broader tech selloff.

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Barclays raised the question of whether Dell’s clients are increasing purchases or merely spending more on memory, and two days later, with a 17% decline, the market continues to react.

Key takeaways:

• Dell shares declined approximately 11% on Wednesday and 7% on Thursday, for a combined fall of about 17%.
• The stock finished Thursday around $473, roughly 20% below its all-time high from mid-September.
• Barclays lowered Dell to equal weight from overweight and reduced its price target to $574 from $603.
• Hewlett Packard Enterprise and NetApp were also cut to equal weight.
• Barclays contends that higher memory prices, rather than enterprise AI demand, are boosting hardware revenue.
• Despite the recent drop, Dell has still roughly quadrupled in value this year.

Dell Technologies shares continued to fall on Thursday, losing about 7% following an 11% decline the previous day. Market participants were assessing a Barclays downgrade that claimed Dell's revenue surge is driven more by increased memory chip costs than by true growth in corporate AI investment.

The two-day drop of about 17% brought the stock to approximately $473 at Thursday's closing. That positions Dell about 20% under its mid-September record, nearing the level often considered a bear market. The declines on Thursday occurred in the morning, with shares opening significantly down and dipping almost 11% before partially rebounding.

Barclays analyst Tim Long downgraded Dell to equal weight from overweight and cut his price target from $603 to $574. He also reduced ratings on Hewlett Packard Enterprise and NetApp to equal weight, extending the same reasoning to the broader enterprise hardware sector.

The central argument from Barclays is that enterprise AI investment has not yet inflected significantly. Rather, Long argued that recent hardware company earnings have been boosted by higher memory costs that are transferred to clients. This increases reported revenue without a corresponding increase in real demand. If memory prices stabilize or decline, that tailwind could disappear, leaving revenue vulnerable.

The downturn comes after an exceptional rally. Even following two days of significant declines, Dell stock has still almost quadrupled year-to-date, offering limited tolerance for setbacks. The timing contrasts with the company's own statements. One day prior to the downgrade, CEO Michael Dell commented that enterprise AI demand is just starting and AI computing demand continues to outstrip supply.

The selloff extended to other AI hardware names, including server builder Super Micro Computer and networking firm Arista Networks, while the broader tech sector saw smaller declines. This indicates that investors viewed the downgrade as a caution regarding the enterprise-focused hardware segment of the AI trade, not a broader assessment of AI investment.

The continued selling on Thursday is significant. A single-day decline after a downgrade may be a rapid repricing, but a second day of sharp losses points to investors questioning the sustainability of Dell's growth. The upcoming challenge will be Dell's own earnings and outlook. Those figures should reveal if AI server demand is spreading across enterprise clients and how much revenue growth stems from price versus volume.