Artificial intelligence (AI) advancements have captivated investors, propelling several tech stocks ahead of the broader markets this year. For instance, Nvidia Corporation (NVDA), the reigning AI leader and chip giant, recently surged to new heights, claiming the title of the world's most valuable company, surpassing even tech titan Microsoft Corporation (MSFT).
With investors consistently shopping around for the next Nvidia, AI stocks often come with high price tags. In this context, Dell Technologies Inc. (DELL) shines with its compelling blend of robust growth prospects and reasonable valuation.
Dell’s strategic advantages in AI extend far beyond effectively deploying technologies like chatbots and generative AI. The company even received praise from Nvidia’s CEO Jensen Huang earlier this year, who highlighted Dell's unmatched capability in constructing comprehensive, large-scale systems tailored to enterprise needs to deploy AI technologies.
Supported by its expanding AI capabilities and soaring demand for its AI servers, the company has outperformed the broader market, and analysts are also quite bullish on the stock’s prospects. Let’s take a closer look.
About Dell Technologies Stock
Commanding a solid market cap of about $106 billion, Texas-based Dell Technologies Inc. (DELL) develops, manufactures, markets, sells, and supports a wide range of integrated solutions and services globally through its Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG) segments.
While its ISG segment delivers storage solutions, AI-optimized servers, and networking products, the CSG segment provides desktops, laptops, workstations, peripherals, and support services. Founded in 1984, Dell has grown into a global tech leader. Today, Dell revolutionizes the digital landscape with advanced hybrid cloud solutions, high-performance computing, and ambitious social and sustainability initiatives.
Shares of this tech giant have rallied 190% over the past 52 weeks, easily dwarfing the broader S&P 500 Index’s ($SPX) gain of 25.3% during this time frame. Plus, on a YTD basis, DELL stock is up nearly 90% versus the SPX’s return of about 14.7%.
Apart from its growth-focused approach, Dell is also committed to rewarding its shareholders. During Q1, Dell returned approximately $1.1 billion to its shareholders through a combination of share repurchases and dividends.
On June 11, the company declared a quarterly dividend of $0.445 per share, set to be paid out to its shareholders on Aug. 2. Its annualized dividend of $1.78 per share translates to a 1.19% dividend yield. With a conservative payout ratio of 24.9%, Dell not only ensures its dividends are well-covered by earnings, but also leaves ample room for future increases.
Meanwhile, from a valuation standpoint, the stock trades at 21.77 times forward earnings and 1.20 times sales, lower than its industry peers.
Dell’s Q1 Earnings Beat Wall Street Projections
Dell reported its Q1 earnings results on May 30, and the stock tumbled nearly 17.9% in the subsequent trading session as the results raised concerns over the company’s ability to turn its AI revenues into profits - even as Dell exceeded Wall Street’s expectations on the top and bottom lines, and offered rosy guidance during the earnings call.
For Q1, net revenue of $22.2 billion jumped 6% annually, sailing past projections by 2.7%. Adjusted EPS of $1.27 dropped 3% year over year, but also edged out the consensus forecast.
During the quarter, Dell's ISG segment, which includes data center sales, achieved a notable 22% annual revenue growth. Servers emerged as a standout performer within this division, with sales soaring 42% annually to $5.5 billion, reflecting the massive demand for the company’s AI servers.
"We again demonstrated our ability to execute and deliver strong cash flow, with AI continuing to drive new growth," said CFO Yvonne McGill.
However, despite this strong demand, the segment's operating income remained nearly flat, indicating to analysts at Bernstein that these AI servers are being sold at “near-zero margins.” This was a key factor contributing to the stock’s sell-off, as was the AI server backlog of $3.8 billion, which fell short of expectations.
For Q2, management expects revenue to range between $23.5 billion and $24.5 billion, with a midpoint of $24 billion. Looking forward to fiscal 2025, management raised its revenue guidance, expecting it to range between $93.5 billion and $97.5 billion, with a midpoint of $95.5 billion.
What Do Analysts Expect For Dell Technologies Stock?
Analysts tracking Dell expect the company’s profit to reach $6.85 per share in fiscal 2025, up 11.6% year over year, and rise another 29.6% to $8.88 per share in fiscal 2026.
Earlier this week, Morgan Stanley (MS) reiterated its "top pick" status on Dell after management meetings gave the brokerage some insight on the “pain points” in that April quarter, and provided “greater confidence in the path forward post-F1Q earnings.”
Specifically, analyst Erik Woodring expressed increased confidence in Dell's competitive edge and momentum in AI servers. Woodring also observed improving storage demand and a potential rebound in the PC market, which could boost Dell's CSG segment. The analyst note further suggested that investors can capitalize on DELL’s recent post-earning underperformance and strategically “buy the dip on a leading AI Infrastructure player trading at a relative discount to peers.”
DELL stock has a consensus “Strong Buy” rating overall. Out of the 16 analysts covering the stock, 12 suggest a “Strong Buy,” two recommend a “Moderate Buy,” one advises a “Hold,” and the remaining one gives a “Strong Sell” rating.
The average analyst price target of $159.53 indicates a potential upside of 10.8% from the current price levels. However, the Street-high price target of $186 suggests that the stock could rally as much as 29.1%.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.