When it comes to artificial intelligence (AI), the big tech companies known collectively as the “Magnificent Seven” tend to get the most attention.
In my opinion, The Magnificent Seven represents some big ideas featuring AI. For example: NVIDIA, Teslaand Microsoft It helps investors evaluate how AI is being deployed across data centers, autonomous driving and cloud computing.
Smart investors understand that there are opportunities beyond the big tech companies, and it's these behind-the-scenes players that act as the thread that holds big ideas together.
An opportunity I don't want to miss Dell Technologies (NYSE: DELL)The stock is up 76% so far in 2024, but is down 20% since the company reported earnings on May 30.
Let's take a closer look at how Dell fits into the broader AI equation and explore why now is an attractive opportunity to buy on the dip.
Why is Dell important for AI?
Dell breaks down its financial results into two categories: Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
CSG is primarily in the hardware business, selling the company's computers, workstations and support services.When it comes to AI, investors should keep an eye on Dell's ISG performance.
This segment showcases the company's presence in storage solutions, data center services, and network infrastructure.
How is Dell's business performing?
This slide is from Dell's fiscal first quarter (ending May 3rd) earnings presentation.
Dell's ISG business generated revenue of $9.2 billion during the quarter, up 22% year over year. Server and Networking revenue grew 42% year over year to $5.5 billion, while Storage Solutions revenue was flat year over year and down 16% sequentially.
The decline in storage revenue impacted ISG's operating margins, which fell 1% year over year to $736 million, but management tempered expectations by explaining that “given the seasonality of storage, the first quarter was the seasonally least profitable quarter for ISG and we expect ISG's operating margins to improve as the year progresses.”
According to IDC data, Dell boasts more market share in storage systems than its second-, third-, and fourth-largest competitors combined. Additionally, within the server and networking group, management said the company's PowerEdge XE9680 server is the fastest-growing solution in Dell's history.
I believe these data points undermine Dell's strong position in AI, but investors should exercise some patience as there are still long-term tailwinds driving demand trends.
Dell's Compelling Valuation
This chart compares Dell's price-to-earnings (P/E) ratio with its peers. Some notable outliers from the chart are: Super Microcomputer and Arista Networksboasts a PER of over 40 times.
A smart strategy is to use dollar-cost averaging when building a position in a stock. Dell stock has gained some momentum, but the difference in valuation multiples shown here is hard to ignore.
Dell's P/E of 27x is not cheap, but I believe it's a bargain compared to some of its competitors. Additionally, when it comes to the intersection of IT infrastructure and AI solutions, I believe there is already a lot of upside priced in, especially for Supermicro. For this reason, I believe Dell is an under-the-radar opportunity.
With the stock price plummeting, now seems like an interesting time to accumulate Dell stock. I see no reason for the company's ISG business to grind to a halt or suffer unwanted competitive disruption. Instead, I believe Dell is quietly carving out a good position in AI and is a likely leader for the future.
Should you invest $1,000 in Dell Technologies right now?
Before buying Dell Technologies stock, consider the following:
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Adam Spatacco has investments in Microsoft, Nvidia, and Tesla. The Motley Fool has investments in and recommends Arista Networks, Microsoft, Nvidia, and Tesla. The Motley Fool recommends buying Microsoft January 2026 $395 calls and selling Microsoft January 2026 $405 calls. The Motley Fool has a disclosure policy.
1 Beaten-Down Artificial Intelligence (AI) Stocks to Buy Now was originally published by The Motley Fool.
