We recently compiled a list of the 20 Worst Performing AI Stocks of Last Week. In this article, we are going to take a look at where Dell Technologies Inc. (NYSE:DELL) stands against the other AI stocks.

US Stocks in September

This September saw a sluggish start for most US stocks, and large-cap technology stocks were no exception to this trend. The main driving factors for this development include concerns over the health of the American economy resurfacing, particularly in light of the August jobs report. The report underscored the labor market’s weakness in the US, which has not left investors feeling all that secure about the state of the economy.

On the stock side, many investor favorites in the artificial intelligence (AI) space have been doing poorly so far in September, with losses ranging from around 4% to even over 20% for the first week of September. The primary reason for this decline seems to be that investors are just not satisfied with the growth demonstrated by major AI companies at present. While growth is definitely present, it’s continuing to fall short of investor expectations, which have increased exponentially in light of the hype cycle created around AI stocks.

Are We Really In An AI Bubble?

The first week of September was actually the worst week for chip stocks recorded in over two years. Many investors are now beginning to wonder whether AI is worth the amount of money being poured into it, resulting in corporate spending on AI coming under greater scrutiny than ever before. The greater scrutiny is predominantly because of investors and analysts now thinking that many AI stocks are overhyped and overvalued and don’t have the means to justify this hype and valuation – essentially, the main concern is that we’re in an AI bubble that’s on the brink of bursting.

However, as with any high-tension market situation, there are diverging opinions as well. In his September 6 interview on CNBC’s “Closing Bell Overtime,” Deepwater Asset Management’s managing partner, Gene Munster, emphatically stated that we are not in an AI bubble. For him, the bigger problem in the AI space is that every other company today is trying to talk about AI and say that it’s working towards AI incorporation in its operations – something that’s leading to a lot of noise in the market, which is drowning out the voices of companies offering real substance in this space. He thus noted that it’s important for investors to be careful not to invest in just any company that says it’s working with AI and instead to focus on the better, perhaps more boring, options in the market.

According to Munster, the main players to keep your money in are predominantly big tech names, as these are the only companies that are poised to deliver substantial growth instead of just generating noise. However, investors are still confused about whether AI is a good place to invest in even today, which is why we’ve compiled a list of the worst performing AI stocks in September so far and explained whether these stocks are worth picking up or if they’re just temporary beneficiaries of the hype around AI.

Our Methodology 

We compiled our list by screening for AI stocks that have seen declines of 10% or above in the first week of September, and then ranked the stocks based on their weekly decline as of Friday, September 6. We have also mentioned the number of hedge funds holding stakes in each stock.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Dell Technologies Inc. (NYSE:DELL)

Weekly Decline: 11.65%

Number of Hedge Fund Holders: 88

Dell Technologies Inc. (NYSE:DELL) is an information technology company that sells and supports various comprehensive and integrated solutions, products, and services. It is based in Round Rock, Texas.

Dell Technologies Inc. (NYSE:DELL) is garnering increased investor attention because it is poised to benefit from increasing investment in AI servers. For instance, several big tech names, such as Amazon and Microsoft, are making bigger investments in AI data centers.

Regardless of this, Dell Technologies Inc. (NYSE:DELL) does seem to be facing some headwinds, which may explain the recent decline in the stock’s price. One challenge is the exit from its resell business for VMware. Additionally, due to an increase in Dell Technologies Inc.’s (NYSE:DELL) AI-optimized server mix and a more competitive pricing environment, the company also saw a 230 basis point decline in its gross margin, which came in at $5.5 billion. This is a potential red flag for many investors since the general trend seems to signify that the more AI-optimized servers Dell Technologies Inc. (NYSE:DELL) sells, the more its gross profit margin declines.

The primary reason for this trend surrounding Dell Technologies Inc. (NYSE:DELL) is that its main customers, like Amazon, Alphabet, and Microsoft, are all big tech companies with immense negotiating power. This results in these companies negotiating lower prices for AI-optimized servers and data centers, which leads to lower profit margins for Dell Technologies Inc. (NYSE:DELL). Despite this, the company’s CFO has commented that they still expect solid top-line growth in the second half of 2024, so investors following Dell Technologies Inc. (NYSE:DELL) right now should keep all of these considerations in mind as they try to understand the stock’s weekly decline and future growth prospects.

At the end of the second quarter, 88 hedge funds were long Dell Technologies Inc. (NYSE:DELL), with a total stake value of $2.9 billion.

Overall DELL ranks 14th on our list of the worst performing AI stocks last week. While we acknowledge the potential of DELL as an investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DELL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.