Dell Earnings: AI Growth Still Doesn’t Support Its High-Flying Share Price

Key Morningstar Metrics for Dell Technologies

• Fair Value Estimate: $55.00
• Morningstar Rating: 1 star
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Dell Technologies’ Earnings

We’ve raised our fair value estimate for Dell Technologies DELL to $55 per share from $46, behind higher growth expectations for the firm’s artificial intelligence server sales. The firm has carved out a good position with GPU-powered enterprise servers that should fit into relatively smaller data centers, and it appears to have a good relationship with Nvidia NVDA to supply the chips needed.

Dell’s artificial intelligence growth is impressive, but it continues to represent a small minority of the business. Its 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% after hours. Even with our raised outlook and a bullish view of AI server growth, we can’t rationalize Dell’s current valuation, and we view its shares as significantly overvalued.

Fiscal fourth-quarter sales dropped 11% year over year and remained flat sequentially at $22.3 billion. PCs remain the majority of Dell’s business and declined 12% year over year. Both AI-optimized and traditional server demand grew, which was positive. Traditional servers have seen weaker demand for several quarters, and we see sequential growth and an outlook for growth in fiscal 2025 as positive. AI-optimized server demand displayed clear momentum, with shipments growing by around 40% sequentially to about $800 million. AI-optimized server backlog almost doubled to $2.9 billion. Dell’s AI growth is impressive, but we remind investors that it still sits at a low-single-digit percentage of overall firm revenue and is margin-dilutive.