Dell's Shares Present a Notable Purchase Opportunity in November
Dell Technologies (DELL losing 0.63%) shares have experienced significant upward momentum over the past few years, despite this, the stock's value remains enticing. This is largely due to the significant boost in demand for Dell's servers, accounting for about half of its total revenue. Here's why the stock is projected to reach new heights by 2025.
Dell still packing a punch despite weak spots
Dell's revenue experienced an accelerated growth rate of 9% year over year in the fiscal second quarter ending August 2, an improvement from the 6% growth in the previous quarter. Analysts forecast a 10% revenue increase for the entire year, indicating further growth in the latter half of the current fiscal year.
The robust demand for servers and networking equipment boosted Dell's infrastructure solutions segment by 38% year over year in Q2 of the fiscal year. However, this growth is tempered by a decline in Dell's personal computer (PC) business, where client solutions revenue dropped by 4% year over year.
The slump in PC sales is expected to improve in the future. Given that Dell has already managed to deliver both top and bottom-line growth with half its business experiencing sales decline, the stock could experience price surge next year if the demand for PCs picks up.
The stock's surge has primarily been influenced by the growing demand for servers optimized for artificial intelligence (AI). For the entire year, Dell's infrastructure revenue is predicted to increase by 30% year over year, fueled by the high demand for this critical hardware used in AI applications.
Dell's in a prime position to capitalize
Dell places a strong emphasis on customer service. It aims to foster customer relationships through its direct sales force and a global network of sales partners. Additionally, it offers financial services and technical support, which seems to be giving the company an edge in the current AI solutions market.
"We're competing in all major AI deals and are winning substantial deployments at scale," said Chief Operating Officer Jeff Clarke, during the company's Q2 earnings call for August 2.
Dell believes its potential market in AI hardware and services is worth $174 billion, growing at a 22% annualized rate. Clarke describes AI as a "once-in-a-generation opportunity." With this significant market potential, Dell's infrastructure solutions segment offers plenty of room for growth.
The strongest reason to invest in Dell stock
Given that Dell is a leader in AI servers with a strong history of delivering profits, its forward price-to-earnings ratio of 17 is at the lower end of its estimated fair value range. Investors should not expect the stock to trade at high P/E ratios since Dell is not a fast-growing company. However, it has a firm footing in the server and PC market and has consistently delivered profitable growth.
Even management appears to believe the stock is undervalued. In the last quarter, the company repurchased 5.5 million shares at an average price of $130.03. Since the start of fiscal 2023, Dell has returned $9 billion to shareholders through dividends and share repurchases. This equates to almost all of the company's free cash flow generated during this period, which is remarkable.
Wall Street analysts predict Dell's earnings will increase by 12% annually over the long term. Dell will also benefit in the near future as more AI-enabled PCs enter the market, with continued growth in the server market. Ultimately, Dell shares present an attractive investment opportunity priced at $136 and could yield above-average returns over the coming years.
In view of Dell's strong performance in the AI market and its focus on customer service, investing in Dell's finance sector could potentially yield above-averge returns, considering its forward price-to-earnings ratio of 17 being at the lower end of its estimated fair value range. This strategic investment in Dell's money-making ventures could provide substantial benefits in the coming years.
Furthermore, Dell's continuous effort to boost its servers optimized for AI applications, as seen in its predicted 30% year-over-year infrastructure revenue growth, underlines the company's commitment to finance its investments in this critical technology, making it an attractive option for investors seeking to invest in finance and technology sectors.
