(Bloomberg) — Dell Technologies Inc.’s shares have recently been moving in a similar vein to market leader Nvidia Inc., and investors are betting the company will experience a similar upswing fueled by artificial intelligence.
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The PC- and server-maker has emerged as one of the biggest winners from the AI boom, a view that's likely to strengthen when it reports first-quarter results after the market closes. Confirmation of improved growth prospects could help keep the company's shares, which are at record highs but trade at a discount relative to other tech stocks.
Dell recently generated excitement by unveiling a line of AI-optimized PCs, raising hopes that such features could spur a much-needed upgrade cycle for customers and businesses, and HP on Wednesday announced that its PC sales had increased for the first time in two years.
At the same time, the company's high-performance servers have also been endorsed by NVIDIA CEO Jensen Huang, who praised the company's “great partnership” with Dell at the GTC conference, saying, “No one does better than Dell to build very large-scale end-to-end systems for the enterprise.”
“They have a very important place in the AI ecosystem that hasn't been fully appreciated yet,” said Doug Clinton, managing partner at Deepwater Asset Management.
“Both the PC and server businesses will drive growth over the next few years, which will support both the stock price and the multiple. The growth story is still undervalued and the multiple is very low compared to other AI businesses, so we view this as both a growth and value investment.”
The stock has risen 127% this year, coming off its longest six-day winning streak since July. The stock was down 3% on Thursday. Much of this year's gains came after Dell's last report revealed that AI is fueling massive demand for the company's servers.
One reason Dell has remained off investors' radar is that it's not in any large-cap index, even though its market capitalization of more than $127 billion is bigger than most of the stocks in the S&P 500. The company previously wasn't included because it has multiple share classes, but S&P Dow Jones Indices lifted a rule last year that barred such companies from being included.
Analysts have expected Dell to be added to the list and see its inclusion as a potential catalyst for a rise in its stock price. Supermicro Computer, another stock in the AI server space, was added in March despite its market cap being below $50 billion.
The S&P 500 is rebalanced quarterly, with the next rebalancing scheduled for June. Dell's inclusion in the index not only opens up a new world of investors who use the S&P 500 as a benchmark, but also draws more money into passive funds that track the index.
“Dell remains an under-owned and undervalued stock, but AI could be a potential catalyst for it to be included in the S&P,” Bank of America analyst Wamsi Mohan wrote in a May 29 report, raising his price target, citing positive impacts from AI servers, high-end storage, and PCs.
BofA's price target increase reflects analysts being bullish on the stock. More than 80% of firms surveyed by Bloomberg recommend buying the stock, and Morgan Stanley named it a top pick, calling it a stock well-suited to capitalize on server momentum, growing storage demand and an improving PC market.
Read more: Dell sales rebound with AI servers: Preview
That growing optimism has helped keep the stock’s earnings multiple from soaring: The company’s 2025 net profit consensus has risen 7.6% over the past month, while the sales consensus has risen 1.3% in the same period, according to data compiled by Bloomberg.
The company's shares trade at 22 times forward earnings, a significant discount to the Nasdaq 100 index and cheaper than other AI companies such as Nvidia, Super Micro and Microsoft Corp. But Dell's multiple is the highest ever for the stock and well above its five-year average of 5.8 times.
“Dell is becoming an increasingly strategic vendor in AI, but its valuation is greater than it was even a few months ago,” said Dan Flax, senior research analyst at Neuberger Berman. “Demand for AI systems remains strong, but other parts of the business remain cyclical, and a macroeconomic downturn could slow even a growth story as strong as AI's.”
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–With assistance from Subrat Patnaik.
(This is the latest information at the time of market opening.)
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