The company's stock has outperformed Apple over the past five years. What will the next five years hold?
Spending on artificial intelligence (AI) is experiencing an unprecedented boom. Companies are investing billions of dollars in building data centers and other computing infrastructure in hopes of winning the AI technology war.
microsoft and OpenAI. single supercomputer. A lot of money is being invested in computing systems.
Investors are piling into the picks and shovels of the AI gold rush. Nvidia and super microcomputer. But there is another AI winner who is flying under the radar. Dell Technologies (Dell 4.37%).
Believe it or not, this crappy personal computer brand is indeed influential in the field of AI. Legacy technology providers are in a position to expand their services beyond consumer devices and take advantage of the potential boom in data centers and cloud computing.
This could make Dell Technologies a sneaky AI winner, but should you buy the stock? Let's find out.
Dell: More than a PC
Dell is known for its brand of Windows-powered computers. They still represent a significant portion of the business. We focus on high-end laptops, personal computers, gaming stations, and business PCs. Dell's computer division, which is part of the Client Solutions Group, had sales of $48.9 billion and operating income of $3.5 billion in fiscal 2024 (ending February 2).
Although the sector has seen rapid growth during the pandemic, fiscal 2024 sales were roughly the same as 2020. It has generated consistent operating income of at least $3 billion in each of the past five years.
Even more interesting, at least from an AI perspective, is Dell's Infrastructure Solutions division. This segment helps AI companies assemble and build highly efficient data centers around the world. Nvidia's CEO Jensen Huang also promoted the company in his latest keynote, saying Dell is the best solution for building data centers.
Although it doesn't have the same financial boom as Nvidia, Dell's infrastructure solutions division generated $4.3 billion in operating profit last year. If companies continue to rely on Dell to help optimize the computing power of advanced computer chips such as Nvidia, investors should see the sector's revenues grow in the coming years. is.
Possibilities and precautions regarding AI beneficiaries
There's a lot of excitement building around Dell, especially after a direct mention from Nvidia's CEO. The company's stock price has risen more than 300% over the past five years, outpacing his hardware computing rivals. apple.
Dell's Infrastructure Solutions division could grow rapidly in the coming years as companies continue to build more AI computing systems. The company is one of the top brands in the field, with sales expected to be in the tens of billions, perhaps hundreds of billions. So it's no wonder some people are excited that Dell is one of the next big AI winners.
But it's risky to bet on stocks solely because of this hype-filled story. Every year, a new article comes out from Wall Street about what investors in “hot” sectors should buy. In some cases, these are areas of great opportunity that drive the global economy, such as cloud computing.
What's hot on Wall Street one year often becomes a sideshow the next. In just the past decade, investors have experienced booms and busts in areas such as cannabis, 3D printing, and the Metaverse. These are all sectors that have been talked about as the next big thing, but most of the stocks in these sectors underperformed the broader market by a wide margin.
This is not to say that AI is overhyped, but investors should tread carefully when investing in popular trends of the time.
When is the time to buy stocks?
In 2022, Dell's price-to-earnings ratio (P/E) was below 8. this is, S&P500 This is the market average and is the main reason why this stock has delivered such impressive returns over the past few years.
However, the company's underlying earnings have been unstable over the same period, with earnings per share in FY2024 essentially unchanged from 2021. Still, it's up significantly from pre-pandemic levels.
Therefore, most of the rise in stock prices is due to multiple economic expansions. The company's P/E ratio is currently 27x, which is roughly in line with the S&P 500 average.
Buying the stock at a P/E ratio of 27 means we expect the company to perform well in the coming years, fulfilling the narrative that the company will benefit from AI through consistent financial growth. Competitors such as Nvidia and Super Micro Computer have seen exponential growth in sales and profits, although evidence of that is hard to find so far.
If Dell Technologies can boost its earnings, the stock could still trade after its recent rally. However, if earnings remain stagnant or even decline, it will be difficult for the stock to maintain its current momentum.
Brett Schaefer has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.