Dell’s stock has risen as much as Nvidia’s, but Dell’s profits haven’t
Dell has been one of the hottest AI stocks of the last year, but is it really benefiting from the AI boom?
Nvidia has been one of the biggest stock market winners over the last year, with the tech industry’s insatiable demand for AI chips sending its stock up 223%. However, another company has quietly gained 223% this year too: Dell.
Yesterday, Dell shares rose more than 11% after Morgan Stanley raised its price target and predicted the company would benefit from more demand for AI servers.
This comes two months after Nvidia CEO Jensen Huang highlighted the role that Dell is playing in the AI world, saying, “Everybody who is building these chatbots and generative AI, when you’re ready to run it, you’re going to need an AI factory. Nobody is better at building end-to-end systems of very large scale for the enterprise than Dell.”
Surprisingly, Dell’s financial performance hasn’t matched its stock returns.
Nvidia's ascension to the $2 trillion club coincided with the company growing its revenue and net income by 200% and 800%, since ChatGPT launched in November 2022.
Dell, on the other hand, has lower revenue than it did a year and a half ago, while its earnings have remained flat over the last three years. And Wall Street analysts don't expect operating performance to meaningfully inflect higher in the short term, either: estimates for where both revenues and profits will be in one year's time, if realized, would still leave results below their post-pandemic highs, per Bloomberg.
In Dell's Q4 earnings call, COO Jeffrey Clarke noted that they were seeing increased demand for their AI servers, noting, "AI-optimized server orders increased by nearly 40% sequentially. We shipped $800 million of AI-optimized servers, and our backlog nearly doubled sequentially, exiting the fiscal year at $2.9 billion."
However, that is still a small fraction of Dell's total $22.3 billion in total quarterly revenue, and it did little to slow an 11% drop in year-over-year sales.
Dell may be one of the winners of the AI boom, but so far, the stock has run far ahead of the business.
