Yahoo Finance Does DELL's Expanding AI Footprint Make the Stock a Buy?
Dell Technologies DELL shares have surged 91.2% year to date, outperforming the broader Zacks Computer & Technology sector’s return of 24.5% and the Zacks IT Services industry’s gain of 8.6%.
The outperformance can be primarily attributed to the strong demand for AI servers driven by ongoing digital transformation and heightened interest in generative AI (GenAI) applications. Dell has been witnessing demand from a diversified customer base that includes the likes of higher education institutions, financial services, health care and life services, and manufacturing.
The launch of Dell AI Factory has been a game changer for Dell shares. The platform combines Dell solutions and services optimized for AI workloads and supports an open ecosystem of partners comprising NVIDIA NVDA, Meta Platforms, Microsoft and Hugging Face.
DELL Stock Outperforms S&P, Sector
Image Source: Zacks Investment Research
Dell’s robust AI-optimized portfolio has been helping it win enterprise clients rapidly. In the first quarter of fiscal 2025, AI-optimized server orders increased to $2.6 billion, with shipments jumping more than 100% sequentially to $1.7 billion. AI server backlog grew roughly $900 million sequentially to $3.8 billion, reflecting strong growth prospects.
Dell Stock Rides on Strong Portfolio, Partner Base
Dell’s strong portfolio has been a key catalyst driving share price movement. Its latest PowerEdge XE9680L is an 8-way GPU server with 12 Gen5 PCIe slots and direct-to-chip liquid cooling that improves overall power efficiency by 2.5 times, making it very suitable for enterprises deploying AI capabilities.
Dell has added the PowerScale F910 to its AI-optimized portfolio, thereby expanding storage capabilities. DELL expanded its networking portfolio with the new PowerSwitch Z9864 with 51 terabits per second of throughput for AI workloads.
Dell has also expanded its client portfolio with next-generation AI PCs powered by Qualcomm’s QCOM Snapdragon X Elite and Snapdragon X Plus processors. The product lineup includes five new laptops, XPS 13, Inspiron 14 Plus, Inspiron 14, Latitude 7455 and Latitude 5455, positioning Dell at the forefront in transforming the AI PC experience, making it more seamless, efficient and secure for all users.
Dell is integrating AI capabilities locally on the devices through Qualcomm’s custom-integrated Oryon central processing unit, premium GPU, and neural processing unit (NPU). This integration is helping Dell to deliver advanced battery life and 45 trillion operations per second of performance on the NPU. These PCs can support 13 billion-plus parameter models, which means customers can run large language models like Llama3 directly on their PCs.
Moreover, Dell is benefiting from an expanding partner base. NVIDIA has played a pivotal role in developing the Dell AI Factory. The collaboration integrates Dell’s portfolio with NVIDIA’s AI Enterprise software platform and Tensor Core GPUs, enhancing compute power and simplifying AI application development and deployment for faster time to value.
Dell is collaborating with NVIDIA to build an AI Factory for Tesla CEO Elon Musk’s xAI, which is planning to build a supercomputer by fall next year. Dell is going to assemble half of the racks for this supercomputer, while the other half will be built by Supermicro.
Strong AI Shipment to Aid Top-line Growth
Dell has shipped more than $3 billion of AI servers over the last three quarters. It expects the momentum to continue in fiscal 2025, driven by a strong portfolio of AI-optimized solutions and an expanding partner base.
For fiscal 2025, Dell expects revenues between $93.5 billion and $97.5 billion, indicating a growth rate of 8% year over year at the mid-point of $95.5 billion. It expects the Infrastructure Solutions Group to grow by more than 20% fueled by AI.
The Zacks Consensus Estimate for fiscal 2025 revenues is currently pegged at $96.76 billion, indicating year-over-year growth of 9.43%.
Strong top-line growth, along with stringent cost control, is expected to fully offset a 150 basis point decline in gross margin for the fiscal year. Dell expects operating expenses to decline by low single digits for the fiscal year, thereby benefiting the bottom line. Earnings are expected to be $7.65 per share (+/- 25 cents), up 7% at the mid-point for fiscal 2025.
The consensus mark for Dell’s fiscal 2025 earnings is pegged at $7.82 per share up 0.6% over the past 30 days and indicating 9.68% year-over-year growth.
Conclusion
Dell’s robust portfolio and expanding partner base are key drivers. Its strong liquidity, with a cash balance of $7.3 billion, is noteworthy as it makes dividend payout more sustainable.
DELL Stock Undervalued
Image Source: Zacks Investment Research
This Zacks Rank #1 (Strong Buy) stock is trading at a significant discount, with a forward 12-month P/E of 16.96X compared with the Zacks IT Services industry’s 34.08X, making the stock an attractive pick for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
Dell Technologies Inc. (DELL) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
