Dell Stock Is Likely to Continue to Be a Big Beneficiary of the AI Boom for the Foreseeable Future

In a previous column, I stated that Dell (DELL) had “reported excellent fiscal first-quarter results and (has) multiple, powerful catalysts,” while “the company is benefiting tremendously from the AI Revolution in multiple areas.” Here, I'll explain in more detail how the firm is being boosted by the expansion of AI and explain why the latter trend looks poised to continue for the foreseeable future.  

With the shares still changing hands at a very attractive valuation and the Street continuing to be bullish on the name, I still believe, as I wrote in my previous piece, that Dell is “worth considering for value and growth investors looking for increased exposure to the AI boom.”

About Dell Technologies Stock

Dell Technologies is a leading U.S. multinational technology company specializing in computers, servers, storage, and AI solutions. Formed by the 2016 merger of Dell and EMC, the firm is a key player in digital infrastructure, providing products for both consumers and enterprises, from Alienware gaming PCs to PowerEdge servers. In particular, Dell's servers are being increasingly used to run AI workloads, with hyperscalers and AI developers among its major customers.

Currently, Dell has a market capitalization of $280 billion and a forward price-earnings ratio of 23.5x. DELL stock is up about 250% year-to-date (YTD) and about the same for the last 52 weeks.

How Dell Is Being Lifted by the Expansion of AI

Speaking on the company's Q1 earnings call held in May, COO Jeff Clarke noted that the company had introduced new infrastructure to support Nvidia's (NVDA) latest AI chips. These offerings, such as new "rack scale infrastructure, additional, faster, air-cooled servers with improved analytics," and an upgraded AI Data Platform, met demand from enterprises. Moreover, Dell launched new PCs powered by Nvidia's advanced chips and a storage product whose “performance and density” is “up to 3x” superior to previous products.

Meanwhile, the IT giant is continuing to expand its partnerships with many of the biggest names in AI other than Nvidia, such as Alphabet's (GOOG) (GOOGL) Google, Palantir (PLTR), and ServiceNow (NOW). As an example, Clarke noted that, in cooperation with Google, Dell is “bringing (Google's) Gemini (AI) models on premises with confidential compute so customers can run AI closer to the data while meeting data residency, privacy, and sovereignty requirements.” 

Importantly, Clarke noted that Dell continues to gain market share in general, while the revenue of its “traditional” server unit had jumped 92% year-over-year (YoY), with demand running “well ahead of supply” for such servers in Q1. 

Why the Trend Is Likely to Continue for the Foreseeable Future

Dell is likely gaining market share in multiple areas, including PCs, because its products are superior to those of its competitors, and there are no signs that the latter situation will change anytime soon.  

Additionally, the company is benefiting from the demand for servers with high amounts of flash memory, Clarke stated. The latter trend is likely being propelled by both the hoarding of flash memory as prices for that commodity continue to climb and by the trend of traditional servers increasingly being used to “take on AI workloads,” in the words of Clarke. With the demand for AI continuing to expand rapidly, the latter situation shows no signs of easing either. 

And finally, with demand exceeding supply in traditional servers, Dell can and likely is taking multiple steps to meaningfully expand its supply.

The Street Continues to Be Very Bullish on DELL Stock

DELL stock has surged 15% in the previous five days and almost 20% in the past month. 16 of 25 analysts who cover DELL rate it as a “Strong Buy,” two more rate it as a “Moderate Buy,” and the last seven rate the stock a “Hold.” There are no sell ratings.

Finally, the mean price target of $489.14 gives an approximately 11% upside potential from its current price the morning of July 10. And the high target of $700 gives DELL stock a 59% increase potential.