Dell Technologies(NYSE: DELL) has been in top form on the stock market so far in 2024, rising an impressive 76% at the time of writing. This came about thanks to a change in the company’s fortunes due to growing demand for its server solutions used to assemble artificial intelligence (AI) chips.
The stock’s rally in 2024 will be tested when Dell releases its third-quarter fiscal 2025 results on Tuesday, November 26. Let’s see what investors can expect from Dell when it releases its quarterly report and see if its guidance is going to be strong enough to help it sustain its impressive turnaround.
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When Dell released its second-quarter fiscal 2025 results in August, management noted that the company’s growth is likely to recover in the second half of the fiscal year. It forecast fiscal third-quarter revenue of $24.5 billion at the midpoint of its guidance range, which would be a 10% increase from the same quarter last year.
Dell expects adjusted earnings to reach $2 per share at the midpoint. Consensus estimates compiled by Yahoo! Financials, however, expects Dell to generate $2.04 per share in earnings on revenue of $24.7 billion. It won’t be surprising to see the company outperform Wall Street’s rising expectations, thanks to strong demand for its AI servers.
For example, in the fiscal second quarter, Dell sold $3.2 billion worth of AI servers, compared to $2.6 billion in the first quarter. Once again, a strong performance appears to be in store, as the company ended the second quarter with an AI server backlog of $3.8 billion.
It also noted that it has a potential revenue pipeline that “has grown to several multiples of our order book.” If Dell manages to ship more AI servers thanks to an improved supply chain, there is a good chance it will be able to post better-than-expected numbers.
Another factor that could work in Dell’s favor are the problems faced by its rival. super microcomputer(NASDAQ:SMCI) is facing. Supermicro shares have plummeted due to negative news, including allegations of accounting manipulation, the resignation of its auditor and management’s failure to submit the annual report on time.
Now it appears that Supermicro customers are diverting their orders from the company. As reported by Tom’s Hardware, Elon Musk’s xAI has reportedly received orders for AI servers worth $6 billion elsewhere at Supermicro. The report adds that Dell could be one of the biggest beneficiaries of such a development, as it is one of the largest server manufacturers in the world.
Additionally, Dell reportedly controls half of the AI server orders from companies run by Elon Musk (and Supermicro controls the other half). If Supermicro is indeed losing orders for AI servers, the chances are higher that Dell will provide better-than-expected results and guidance.
With the stage set for Dell to deliver better-than-expected results, investors should also note that a negative reaction to the company’s results should be treated as a buying opportunity. That’s because the global AI server market is projected to reach $177 billion in annual revenue by 2032, according to Global Market Insights, up from $38 billion last year.
This explains why Dell management commented on the latest earnings conference call that it has a strong customer base for its AI servers that is significantly larger than its order book. If Dell can turn that portfolio into real revenue and gain greater share of the AI server market, it could see a long-term acceleration in its revenue and profit growth.
It’s worth noting that Dell’s fiscal 2024 earnings fell 6% year-over-year to $7.13 per share. The company expects to post $7.80 per share in earnings in fiscal 2025, which would be a 9% improvement from the prior year at the midpoint. The forecast for the next two years points to a stronger jump in Dell’s results.
DELL earnings per share estimates for next fiscal year data according to YCharts.
With Dell currently trading at 25 times trailing earnings and 13 times forward earnings, investors are getting a good deal on this AI stock right now. They may want to grab it with both hands as it looks likely to take off after releasing its results on November 26.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Prediction: This Artificial Intelligence (AI) Stock Will Soar Higher After November 26 was originally published by The Motley Fool
