Dell Technologies‘ (NYSE:DELL) The remarkable stock rally came to a halt after the company released its third-quarter fiscal 2025 results (for the three months ended November 1) on Nov. 26, with shares of the tech giant known for its computer personal (PC) and its server. solutions fell more than 12% in a single day.
It was no surprise to see investors hit the panic button following Dell’s results. The stock has made stellar gains so far this year thanks to its improving financial performance. Additionally, Dell’s growth artificial intelligence (AI) qualifications led to increased expectations from the company. So when Dell failed to deliver the numbers Wall Street was looking for, the stock fell significantly.
However, this appears to be an opportunity for savvy investors to buy solid AI stocks on the cheap. Let’s look at the reasons.
The PC market weighs on Dell, but investors shouldn’t overlook the big picture
Dell reported third-quarter revenue of $24.4 billion, an increase of 10% from last year’s quarter. The company non-GAAP Earnings (adjusted) increased 14% year over year to $2.15 per share. Dell’s revenue narrowly missed the midpoint of its quarterly revenue guidance of $24 billion to $25 billion.
Analysts had set the bar even higher and expected Dell to generate revenue of $24.7 billion. However, the company comfortably beat the earnings estimate of $2.06. Dell followed its mixed quarterly numbers with weaker-than-expected guidance. The company expects fiscal fourth-quarter revenue to reach $24.5 billion at the midpoint, which would represent a 10% increase from last year’s quarter.
Analysts, however, expected $25.6 billion in revenue for Dell. The PC market’s slower-than-expected recovery was a key factor in Dell’s lower-than-expected outlook. PC shipments in the third quarter of 2024 fell 2.4% from the year-ago period, according to market research firm IDC. Dell’s shipments declined 4% year-over-year.
This explains why the company’s revenue from the Customer Solutions Group (CSG), through which it sells desktops, laptops, workstations and other PC-related hardware, has fallen by 1% over one year to reach $12.1 billion. Although Dell’s commercial PC revenue rose 3% from last year to $10.1 billion, slower-than-expected growth in consumer PCs weighed on the segment.
Dell points out that the PC refresh cycle has been brought forward to 2025, and that’s why its CSG business could take a while to hit the gas. However, Dell is confident of a turnaround in the consumer PC sector, noting that tailwinds such as “an aging install base, AI-driven hardware improvements like battery life and the end of Windows 10” are likely to inject some momentum into this area. walk.
The growing adoption of AI PCs, in particular, is expected to play a key role in the recovery of this market. Gartner estimates that AI PC shipments could increase 165% in 2025 to 114 million units, or 43% of the overall market. So there’s a good chance Dell will start seeing growth in its CSG business next year.
At the same time, investors should not forget that demand for Dell servers is growing at an incredible rate thanks to AI. Strong demand for Dell’s AI servers drove a 34% year-over-year increase in the company’s revenue from the Infrastructure Solutions Group (ISG) business, to $11.4 billion. Sales of the company’s servers and networking solutions soared 58% to $7.4 billion.
The company sold $2.9 billion worth of AI servers last quarter. More importantly, demand for these servers was even stronger as it received a record $3.6 billion in AI server orders last quarter. Dell management also highlighted that its AI server revenue pipeline for the next five quarters grew more than 50% on a sequential basis.
Going forward, AI servers are expected to continue to move things forward in meaningful ways for Dell. Indeed, the AI server market is expected to experience an annual growth rate of 30% through 2033, generating an annual revenue of $430 billion by the end of the forecast period.
Valuation Makes Buying Dell Stock a No-brainer
Dell’s latest quarterly results may have sparked mixed emotions among investors, but the discussion above tells us that the company has tremendous long-term prospects thanks to the growing adoption of AI in markets servers and PCs. That’s why buying Dell stock right now seems like a smart thing to do.
After all, Dell trades at 22 times current earnings and 14 times forecast profits. These multiples are lower than technology-intensive ones Nasdaq-100 the index is 32 times higher than current earnings and 29 times higher than forecast earnings. As the chart below tells us, Dell is expected to see healthy double-digit earnings growth going forward.
DELL EPS Estimates for the Current Fiscal Year data by Y Charts
It won’t be surprising to see the stock maintain this momentum for a longer period of time, given the lucrative AI-related addressable markets it serves, which is why investors looking to buy a AI Actions currently trading at an attractive valuation, we should take a closer look at Dell before it regains momentum.
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.