Dell Technologies Inc. (NYSE:DELL)’s shares closed 1.7% higher on September 15th, the day Cramer made these remarks. The day was important for AI stocks as investors were still digesting comments made by Anthropic’s Dario Amodei. Cramer weighed in on the movement and used the stock as an example to point out that sentiment about AI spending had not dulled despite Amodei’s warning about the need to slow AI down due to safety concerns:
“One of the things that I think would be a good tell for today is Dell is up a great deal. If you are going to slow down the spending on AI, other than GEV and Vertiv, I would say you look at Dell and you should look at HPE. The fact that Dell is having a nice rally indicates there a lot of people believe things were overdone yesterday but it is 9:55, so who knows that they can reverse it.
“So I do think that there is an unnatural believe, that if OpenAI doesn’t want to buy the stuff and if Anthropic doesn’t want to buy the stuff, the stuff is going to sit on the shelf. I think Dell’s move today tells you that is not going to be the case.”
Considering Cramer’s remarks, the debate for Dell Technologies Inc. is rather simple as it covers the potential for the firm to target the growing demand for AI infrastructure and the sustainability of the said demand. On this front, Dell Technologies Inc.’s AI optimized server revenue jumped by 100% during the second quarter to touch $16.7 billion. Additionally, the firm also booked $60.9 billion in AI server orders in the quarter and $131 billion in AI server orders over the past 12 months.
More recently, CFO David Kennedy reassured investors at the Citi TMT conference that Dell Technologies Inc. was continuing to experience strong AI generated tailwinds. He outlined that the firm had more than 6,500 enterprise AI customers and this figure had marked a strong 60% growth over the past six months. Kennedy added that with only 10% to 15% enterprises having monetized AI, the road ahead was long for Dell Technologies Inc. and the industry.
While the firm is optimistic about AI, catering to the industry’s needs in an environment where it is facing competition from the likes of HP and Super Micro appears to be impacting margins. The firm’s Infrastructure Solutions Group (ISG), which caters to the AI industry, saw its margins jump by 620 basis points in Q2 to 15%. While this marked a key reversal for a metric that the bears had previously focused on, Kennedy also discussed the margins at the Citi conference, as he outlined that higher memory prices could compress margins and delay revenue recognition due to shortages. Additionally, Dell Technologies Inc.’s PC revenue dropped by 4.2% in the quarter to indicate a slowdown in enterprise spending. At the same time, AI investments led real cash flow to drop by 47% annually.
Looking at hedge fund sentiment, 77 had held a stake in the firm in Q2, which marked a slight jump over the 72 in Q1. Notable additions included GQG Partners‘s $478 million stake. On the valuation front, the stock trades at a forward P/E ratio of 21.83, which is significantly higher than HP’s 12.38. Short interest as a percentage of float is 4.8%, similar to HP’s 4.7%.
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