Dell Technologies breaks out, riding high on AI

Key Points

• After clearing a double-bottom base, Dell stock rallied to a closing high of $73.60.
• Analyst Ming-Chi Kuo predicts a 15% year-over-year growth in Dell's server shipments in 2024 due to AI demand.
• Despite revenue declines, investors applauded Dell's Q3 guidance that exceeded expectations.

Dell Technologies Inc. NYSE: DELL has been on a tear after gapping up 21.25% on September 1. 

The Dell Technologies chart shows the stock breaking out of a double-bottom base above a buy point of $70.77 and rising. The stock closed at $73.60 on November 17, a new closing high.

The stock is currently in "buy" range until it reaches $74.31, which would be 5% above that $70.77 high from October 12.

Spending has boosted several artificial intelligence stocks, such as Nvidia Corp. NASDAQ: NVDA, Meta Platforms Inc. NASDAQ: META, Alphabet Inc. NASDAQ: GOOGL and Microsoft Corp. NASDAQ: MSFT. Dell also benefits as demand for AI from data-center customers grows. 

PC business unit still the biggest revenue generator

Most consumers know Dell as a manufacturer of PCs. That business unit, the Client Solutions Group (CSG), had second-quarter revenue of $12.9 billion, down 16% year-over-year. 

The company said commercial client revenue was $10.6 billion, with demand growth in workstations, which help organizations run complex AI workloads locally. Consumer revenue was just $2.4 billion. 

Meanwhile, the infrastructure solutions group delivered second-quarter revenue of $8.5 billion, down 11% year-over-year. 

Storage revenue was $4.2 billion, while servers and networking revenue came in at $4.3 billion, as Dell cited continued demand growth in AI-optimized servers. 

Dell is now turning to AI to grow revenue with the sluggish PC market post-pandemic.  

Asking AI gear makers to boost production

Analyst Ming-Chi Kuo at Hong Kong-based investment firm TF International did a supply chain channel check and learned that Dell has asked manufacturers of AI server gear to expand production. 

Nvidia chips build Dell's PowerEdge servers. Dell also partnered with Meta Platforms to power Meta's Llama 2 language model.

Kuo posted on social media platform X that Dell's total server shipments should return to growth of about 15% year-over-year in 2024, thanks to strong AI server demand. That would be well above the industry average of 3% to 5% year-over-year growth. 

But there's a twist to Dell's growth: Analysts expect the company's earnings to decline in fiscal 2024, the current year. Wall Street is eyeing earnings of $6.33 per share, a decline of 17%. It should resume growth in fiscal 2025 to $6.86 per share. 

MarketBeat's Dell Technologies earnings data reports a revenue decline from the quarter ending in October 2022. The company also noted year-over-year declines in its most recent earnings announcement, adding that sequential revenue improved in both business units. 

Guidance beat analysts' views

However, in addition to optimism about growing AI business, investors cheered Dell's third-quarter guidance that exceeded analysts' expectations. 

In the most recent earnings conference call, Chief Financial Officer Yvonne McGill said, "We're seeing signs of stability across a number of areas within our business, including small and medium business and government."

She added that the company still measures its largest corporate and global enterprise customers through its IT project investments and spending plans. 

"Against that backdrop, we expect Q3 revenue to be in the range of $22.5 million and $23.5 billion with a midpoint of $23 billion, flat sequentially," she added. 

Chief Operating Officer Jeff Clarke said, "Artificial intelligence is a strong tailwind for all things data and compute as well as CSG when you think about the potential for workstations and eventually all PCs."

Investors cheering despite declines

Dell next reports earnings on November 30 after the closing bell. Analysts expect $1.46 earnings per share on revenue of $22.82 billion. Both would be year-over-year decreases.

Unlike the case of other technology stocks, such as Cisco Systems Inc. NASDAQ: CSCO getting punished for forecasting short-term revenue declines, investors reward Dell for its AI aspirations. 

Investors are still boosting stocks with long-term business prospects for AI, anticipating a wave that will drive growth into the future.