Computer hardware firm Dell Technologies Inc. (NYSE:DELL)’s shares closed 15.8% higher the day after the firm reported its second fiscal quarter earnings report. During the quarter, the firm earned $47 billion in revenue to beat analyst estimates of $44.9 billion. Crucially, the firm also bumped its full year revenue guidance to $192 billion from $167 billion and earnings to $25.50 per share from $17.90. Cramer, who has on several occasions lamented not buying Dell Technologies Inc. (NYSE:DELL) on time, was ecstatic about the results as he tweeted about the firm multiple times:
“Loo, Dell was unbelievable. Crowdstrike is in the best part of the AI trade right now… MongoDB was actually fine. Palo Alto was very good…
“Dell is the most important stock today and if it doesn’t finish up big…i dont know….
“If you watched me on Squawk on the Street you know i said Dell could go up 100. Up 67 yesterday and 28 today. 95. Holding on here.
Dell Technologies Inc.’s role as a computer hardware provider has also made it an important player in the AI buildout, courtesy of the firm’s ability to build AI servers. Consequently, the debate for the firm also concerns whether its valuation, higher than peers Super Micro and HP, is justified through the buildout metrics.
The latest quarter saw Dell Technologies Inc. achieve 58% revenue growth, 203% earnings growth, 100% AI-related server revenue growth and a $95 billion AI server backlog. Naturally, like Cramer, investors were also ecstatic about the firm. The backlog is particularly important as not only did it set a new record, but when divided by Dell Technologies Inc.’s AI server revenue of $16.4 billion, it implies visibility into the firm’s next six quarters. To further sweeten the deal, management also. outlined that between 70% to 80% of its backlog was convertible to revenue in FY27 and FY 28.
Yet, at the same time, the growth came at a cost. Dell Technologies Inc.’s operating margin of 11.5% was flat, which indicated that while it was capturing the market, the gains were not translating into bottom line performance. Similarly, management did not guide to margin expansion for its fiscal year 2027. The margin worries were accompanied by the second quarter’s $2.23 billion in operating cash flow, marking a 13% annual drop.
Looking at the deeper concerns about margins and cash flow, the debate around Dell Technologies Inc.’s valuation makes sense. The stock is trading at a forward P/E ratio of 23.15 which is quite high compared to peer firm Super Micro’s 9x and HP’s 13. Short interest as a percentage of float of 4.6% is a tad lower than HP’s. 5.1%. Gauging hedge fund interest, Insider Monkey’s data shows that Dell Technologies Inc. sits in the middle of SMCI and HPE. In Q2, 77 funds had held a stake in the firm, which was lower than HP’s 85 and higher than SMCI’s 62.
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