teeth Dell Technologies (New York Stock Exchange:DellIs Dell a dinosaur in 2024? Not anymore! The company is reinventing itself as an AI server infrastructure provider. If you want to invest in an underdog company with a compelling turnaround story, consider Dell stock.
I’m not going to dig into the quarterly earnings report today, instead I’ll glean information from a very short post from X (formerly Twitter).
I assure you these are not inconsequential X-posts – they contain potentially game-changing announcements that will definitely be of interest to growth investors as well as value seekers.
This is big news for Dell
Let’s step back for a moment and review some background information. Tesla (Nasdaq:TSLA) CEO Elon Musk has founded a company focused on AI. xAIAdditionally, xAI is developing Grok, an AI chatbot that OpenAI Chat GPT.
Now, fast forward to June 19th. Dell Technologies CEO Michael Dell posted on X, “Dell is working with @nvidia to build the Dell AI factory that will supply @grok to @xai @elonmusk.” It’s a revelation that Dell is working with the Almighty. NVIDIA (Nasdaq:NVDA) is already big news for Dell Technologies.
Also, on June 19, Musk stated in a post on X that “Dell is technically building half the racks that will go into the supercomputer that xAI is building.”
And on that same day, Musk wrote “SMC” or Super Microcomputer (Nasdaq:SMCI) plans to build the other half of the AI supercomputer rack.
At this point, if you envision a bright future for xAI and Grok, you might be tempted to buy more shares of Super Micro Computer.
You can do that if you want, since any Musk deal is usually great news, but you might also want to consider investing in Dell.
Dell: From underdog to AI hero?
The reason I’m against investing in Supermicro right now is because the market is already valuing the company so highly, and there’s no underdog story here because Supermicro is already at the top.
In contrast, Dell Technologies has been out of favor, and perhaps even the butt of jokes, for years — young people aren’t reliant on PCs anymore, after all — but Dell’s reinvention as a developer of AI-enabled PCs means the company could make a comeback in 2024.
In fact, the company is already on the rise and is returning to its former glory. Dell’s stock rally this year has been impressive, but not excessive. Based on Dell’s valuation, we believe the company is still an underdog, or at least not yet a market darling.
We can apply some commonly cited metrics to support our argument: On a trailing-12-month basis, Dell’s GAAP price-to-earnings ratio is 28.27x. For comparison, the sector average price-to-earnings ratio is 30.22x, and Super Micro Computer’s price-to-earnings ratio is 46.18x.
Some people prefer to use price-to-sales multiples instead of P/E ratios, but that’s not an issue: in fact, Dell Technologies’ trailing 12-month P/S ratio is 1.1x, while the sector average P/S ratio is 2.98x.
Additionally, Supermicro Computer has a P/S ratio of 3.8x, so it’s not hard to determine which of the companies involved in Musk’s deals has a more attractive valuation.
Dell Stock: The Recovery Story Is Just Beginning
Dell Technologies isn’t a popular technology company like Super Micro Computer or Nvidia, but Musk’s deal with xAI could put Dell in the spotlight and bring on board some reluctant investors.
Super Micro Computer shares may also be worth buying if they drop 20% or 30%, but if you want to be part of a turnaround story that’s just beginning, you can buy Dell shares now, which is a great way to gain immediate exposure to the AI server industry for your portfolio.
Publication date, David Moardel Did not have, directly or indirectly, any positions in the securities mentioned in this article. Opinions expressed in this article are solely those of the author, copyright InvestorPlace.com. Publication Guidelines.
