Dell Earnings: AI Growth Leads Our Valuation Higher, but Nowhere Near Its High-Flying Share Price

We raise our fair value estimate for no-moat Dell Technologies to $55 per share, from $46, behind higher growth expectations for the firm’s artificial intelligence server sales. Dell has carved out a good position with GPU-powered enterprise servers that should fit into relatively smaller data centers and appears to have a good relationship with Nvidia to supply the chips needed. Dell’s AI growth is impressive, but continues to represent a small minority of the business. Dell’s primary businesses remain the PC and traditional server markets, which exhibit lower growth. Due to the results, fiscal year guidance, an increased dividend, and AI-related momentum, Dell’s stock rose over 15% afterhours. Even with our raised outlook and a bullish view of AI server growth, we can't rationalize the current valuation and view shares as significantly overvalued.