Dell's Post-Earnings Dip Offers a Pre-Holiday Bargain, Anticipating Significant Growth in 2025
Investing with a long-term perspective in mind, Dell Technologies (DELL) might be an excellent choice after its recent dip following Q3 earnings. Even though the company experienced a minor setback, its businesses, particularly in AI, could potentially soar higher in the next few years.
The issue at hand? Dell reported a 10% revenue growth to $24.4 billion and a 14% increase in non-GAAP EPS to $2.15 in the third quarter. Although these figures were impressive, they did not match analyst predictions, causing Dell's stock to tumble. The most significant concern was Dell's guidance for the fourth quarter, which came up short of analyst expectations.
However, it's essential to remember that this softness might be due to temporary factors. On AI servers, the delay in producing the new Blackwell chip from Nvidia may be causing a hold-up in shipments for some data center customers. This issue affected the third quarter, causing a 6.5% decline in AI server shipments from Q2. The disappointing outlook could lead to a potential flatline in shipments in the current quarter.
But investors should not jump to conclusions and assume these challenges will continue in the long term. Dell's AI server backlog has grown to an impressive $4.5 billion, up 18.4% from the previous quarter, and its pipeline has also grown by 50% through sequential increase. Once the Blackwell chip becomes widely available in the beginning of 2025, growth should gradually return.
Moreover, it's worth noting that the PC business might also experience a revival in 2025. Although the market has been on a downturn since 2022, the expiration of the Windows 10 operating system in October 2025 has signaled an opportunity for enterprise customers to upgrade their computing devices. This event could potentially stimulate Dell's PC sales, contributing to its growth.
With Dell's multiple of 22 times trailing earnings in the AI market, the stock might be looking like a decent pick-up this holiday season. Even though the next quarter's performance might be disappointing, the company's key segments have a strong likelihood of bouncing back in the following year.
In summary, although Dell Technologies faced short-term challenges with its recent earnings, its position in AI infrastructure, diversified business model, and growth prospects make it an attractive long-term investment opportunity. And with the potential for a PC market revival in 2025, Dell seems like a solid option to consider for investors with a patient mindset.
In the context of Dell Technologies' financial performance, strategically investing money in their stock could yield long-term returns, considering their strong position in the AI market and potential growth in the PC market post-2025. With a long-term perspective, financing Dell's promising sectors might prove profitable, especially given their impressive AI server backlog and pipeline growth.
