(Bloomberg) — Shares of Dell Technologies Inc. has been acting like industry leader Nvidia Corp. lately, and investors are betting the company will get a similar boost from artificial intelligence.
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The maker of personal computers and servers has emerged as one of the biggest winners of the AI boom, and this story will likely be amplified when it reports its first-quarter results after the close. Confirmation of improving growth prospects could continue to support a stock that is at an all-time high while trading at a discount to other tech favorites.
Dell recently created excitement by unveiling a range of PCs optimized for AI, raising hopes that such features could lead to a long-awaited upgrade cycle from customers and businesses. HP Inc. reported the first increase in PC sales in two years on Wednesday.
At the same time, the powerful servers are endorsed by Nvidia CEO Jensen Huang, who at the GTC conference praised his company’s “great partnership” with Dell and said that “no one is better at building end-to-end systems from very high quality.” be larger in scale for the enterprise than Dell.”
The company “has become a very important part of the AI ecosystem, and it still doesn’t get enough recognition for that,” said Doug Clinton, managing partner at Deepwater Asset Management.
“Both the PC and server businesses will drive growth in the coming years, supporting both the stock and the multiple. We really see it as both a growth and a value play because the growth story is still undervalued and the multiple is very low compared to other AI games.”
Shares are up 127% this year and are on a six-day rally, the longest streak since July. The stock fell 3% on Thursday. Much of this year’s gains come in the wake of Dell’s previous report, which showed that AI was fueling massive demand for its servers.
One reason Dell may remain somewhat off investors’ radar is that, even though it has a market cap of more than $127 billion (making it larger than the vast majority of S&P 500 constituents), it is not a member of the large-cap group. stock index. It was previously ineligible due to its many share classes, but S&P Dow Jones Indices last year dropped a rule that prevented such companies from being included.
Analysts expect Dell to be added and view its inclusion as a potential catalyst for the stock price. Super Micro Computer Inc., another play on AI servers, was added in March despite a market cap of less than $50 billion.
The S&P 500 rebalances every quarter, with the next one taking place in June. Becoming part of it would give Dell access to a new universe of investors who use the S&P 500 as a benchmark, as well as inject money into passive funds that track the index.
“Dell remains an underowned and underweight stock and with the potential catalysts of AI and potential inclusion in the S&P,” Bank of America analyst Wamsi Mohan wrote in a May 29 report in which he raised his price target, citing the favorable impact of AI servers, high-performance storage and PCs.
BofA’s higher target reflects the extent to which analysts are bullish on the stock. More than 80% of companies tracked by Bloomberg recommend buying the stock, and Morgan Stanley has this as its top pick, calling it the best stock to play server momentum, impact storage demand and an improving PC market.
Read more: Dell’s revenue recovers on AI servers: preview
That growing optimism has ensured that the group did not end up in nosebleed territory. According to Bloomberg data, the company’s 2025 net profit consensus rose 7.6% last month, while the revenue consensus rose 1.3% over that period.
The stock trades at 22 times estimated earnings, a notable discount to the Nasdaq 100 Index and cheaper than other AI players including Nvidia, Super Micro and Microsoft Corp. However, Dell’s multiple is a record for the stock and well above five. -annual average of 5.8.
“Dell is becoming an increasingly strategic vendor in AI, but there is much more appreciation for it than there was just a few months ago,” said Dan Flax, senior research analyst at Neuberger Berman. “Demand for AI systems remains healthy, but other parts of the business remain cyclical, and if we see a macroeconomic downturn, even a growth story as powerful as AI could slow down.”
Technical chart of the day
The shares of Salesforce Inc. fell as much as 19% on Thursday, a decline that would represent the largest single-day percentage drop in more than 15 years. The sell-off came after the cloud-based software company said revenue growth in the current quarter will stagnate to the slowest in history.
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–With help from Subrat Patnaik.
(Updates to open the market.)
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