The proliferation of artificial intelligence (AI) has given many companies’ shares a big boost over the past year Dell Technologies (NYSE: DELL) is one of them. Dell’s shares have more than tripled in the past year as investors bought the shares in droves, believing the company could benefit greatly from growing AI adoption.
That’s not surprising, since Dell can capitalize on two lucrative AI-related growth opportunities: servers and personal computers (PCs). And recent developments indicate the company is taking steps to capitalize on both markets. Let’s take a closer look at the reasons why Dell’s red-hot stock market rally could continue thanks to AI.
The rapidly growing demand for AI servers is giving Dell Technologies a nice boost
When Dell reported its fourth-quarter fiscal 2024 results (for the three months ended February 2), management pointed out that it is witnessing robust demand for its AI-optimized servers. More specifically, orders for Dell’s AI-focused servers increased 40% quarter-over-quarter. As a result, Dell’s order book for AI servers nearly doubled from the previous quarter to $2.9 billion.
The company shipped $800 million worth of AI servers in its fourth fiscal year, and its solid backlog indicates that figure could rise even further in coming quarters. More importantly, Dell is on the cusp of a huge growth opportunity in AI servers, as this market is expected to generate $33 billion in revenue by 2024, according to market research firm IDC.
Another estimate from contract electronics manufacturer Foxconn puts the size of the AI server market at as much as $150 billion by 2027. It wouldn’t be surprising if demand for Dell’s AI servers were to skyrocket in the long run. rise, especially considering that optimizing its offering for Nvidia.
Dell recently announced that it has expanded its partnership with AI chip leader Nvidia to offer server solutions optimized for the next generation of Blackwell AI graphics processing units (GPUs). It’s worth noting that Dell offers liquid-cooled servers for mounting Nvidia’s Blackwell processors. That’s a smart thing to do, as the liquid-cooled data center market is predicted to experience annual growth of almost 25% over the next decade.
It’s worth noting that demand for Nvidia’s upcoming Blackwell AI chips is expected to remain extremely healthy through 2025. KeyBanc’s John Vinh estimates that Nvidia’s data center revenues could soar to as much as $200 billion by 2025 thanks to Blackwell processors. a huge increase from last year’s $47.5 billion.
So Dell is doing the right thing by launching Blackwell-focused AI server solutions, as the company should be able to benefit from the huge demand for Nvidia chips. More importantly, the long-term opportunities in the AI server market bode well for Dell as it is one of the leading players in this market.
The PC business seems poised for a turnaround
Weak PC demand in recent years has weighed on Dell’s financial performance. Revenue in the previous fiscal year fell 14% year over year to $88.4 billion. The company’s Client Solutions Group (CSG) revenue, which includes sales of commercial and consumer PCs, fell 16% year over year to $48.9 billion in fiscal 2024.
That wasn’t surprising, considering PC shipments were down 14% in 2023, according to IDC. However, the arrival of AI-enabled PCs is likely to revolutionize this market for Dell, as Dell is the third largest seller of PCs, with a market share of just over 15%. According to market research firm Canalys, shipments of AI PCs are expected to increase at an impressive annual rate of 44% through 2028.
Dell has set its sights on this market, recently announcing a new portfolio of PCs with on-device AI features such as the ability for users to generate images locally using text input, translating “any live or pre-recorded audio from 44 languages to English”, and use AI to increase the resolution of games and videos in real time for an immersive experience.
Dell remains “positive about the upcoming PC refresh cycle and the longer-term impact of AI on the PC market,” and its product development moves should allow the company to capitalize on this opportunity and pull its CSG business out of the crisis it is experiencing located. .
Buying stocks is a no-brainer right now
Dell’s earnings fell 6% to $7.13 per share in fiscal 2024. However, analysts expect the bottom line to return to growth in the current fiscal, followed by healthier growth in the next few fiscal years.
Furthermore, as the chart above shows, analysts have increased their earnings growth expectations for Dell. With the stock trading at 20 times forward earnings, which is a discount to the Nasdaq-100’s forward earnings of 27 (using the index as a proxy for technology stocks), investors are currently getting a good deal on this AI stock . despite the excellent gains made over the past year.
Buying Dell at this valuation seems smart in light of the potential growth AI could bring to the company, as the market could continue to reward the stock with more gains given the accelerated earnings growth it is expected to deliver.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
This artificial intelligence (AI) stock has tripled in a year, and you might regret not buying it outright before it soars higher. originally published by The Motley Fool
