Is Now The Time to Own Dell Technologies (DELL)?

Anything related to AI has been in high demand.

While most retail investors are watching Super Micro Computers (SMCI), financial pros are more interseted in a traditional name – Dell Technologies (DELL).

With more search volume than SMCI, Dell has been a great way to play the AI server demand.

Even with its latest pullback, the shares are up almost 80% year-to-date.

But you maby be surprised to learn that the PC marker trades at one heck of a value.

Dell Technologies’ Business

From its roots as a build-your-own custom PC, Dell Technologies is a trailblazer in the tech world.

From the edge to the core to the cloud, the company’s comprehensive portfolio includes PCs, displays, servers, storage, networking, software, and services, enabling customers to streamline and automate their IT operations like never before.

With a presence in over 180 countries, Dell serves a diverse customer base that includes individual consumers, small businesses, large enterprises, governments, healthcare providers, and educational institutions. 

What really sets Dell apart is its unique operating model. 

With its extensive global supply chain, direct sales capabilities, and world-class services, Dell can deliver customized solutions at scale. 

Dell breaks down its business into the following segments:

• Infrastructure Solutions Group (41% of total revenues) – This powerhouse includes servers, networking, storage, and solutions
• Client Solutions Group (54% of total revenues) – Here, you’ll find desktop PCs, notebooks, peripherals, and services
• Other Businesses (5% of total revenues) – This covers Secureworks, Virtustream, and resale of standalone VMware offerings

Despite a 6% year-over-year revenue growth in the latest quarter, investors knocked the stock down almost 20% in a single day.

Source: Dell Q1 2025 Earnings Presentation

While the Infrastructure Solutions Group saw exceptional growth, thanks to the surging demand for AI-optimized servers, while personal PC sales plunged 15%. Management also forecasted narrower operating margins.

Financials

Source: Stock Analysis

Revenues doubled from 2015 to 2022 before backing off in 2023. However, operating income flipped form negative $2.4 billion to positive $5.7 billion.

The big change came in the SG&A expenses, which plunged from $20 billion in 2019 to just $12.3 billion last year.

This substantial improvement took operating cash flow from $2.4 billion in 2017 to $8.7 billion last year.

All this came as Dell went public for the second time in 2018.

Total debt has declined from $53.8 billion in 2020 to $26.9 billion .

As profitability improved, Dell began to repurchase about $2.5 billion worth of stock every year while paying about $1.0 billion in dividends, yielding about 3.7%.

Valuation

Source: Seeking Alpha

Surpisingly, Dell trades at just 18.6x trailing non-GAAP earnings and 24.1x forward earnings. But what really stands out is the price-to-cash flow at just 10.8x.

Only HP Inc. (HPQ) trades at anything close to that. 

Other companies like SMCI didn’t generate positive cash flow from operations last year and trade at nearly twice the P/E multple.

Growth

Source: Seeking Alpha

Not everything has been roses for Dell.

Despite heavy AI server demand, its PC demand has hampered its revenue growth. However, it’s forecasting positive growth in 2024, unlike HP.

SMCI certainly has the growth. They just don’t have the profitability.

Profitability

Source: Seeking Alpha

Dell has maintained consistent margins that have improved over time. However, management state they expect those to contract in the near future as competition heats up along with inflationary pressures.

This will likely crimp free cash flow as well. But this should hit all of these companies.

Our Opinion 6/10

While we like the value in the company, we’re concerned about the revenue growth which has been non-existent for years.

Dell’s ridden higher on expanding margins, which are due to contract this year. This makes us far more cautious on the near-term outlook.

However, at $100 a share, the value becomes too great to ignore.