8. Dell Technologies Inc. (NYSE:DELL)
Number of Hedge Fund Shareholders In Q1 2024: 82
Dell Technologies Inc. (NYSE:DELL) is an iconic computer company that sells laptops and equipment used in data centers and cloud computing platforms. AI was at the heart of its stock story in May 2024 when the shares fell by 18% to set a new record. This drop followed a growth in costs for Dell Technologies Inc. (NYSE:DELL)’s AI server division. The dip came when a Bernstein analyst pointed out during the call that AI margins were effectively zero. However, the average of 16 one year analyst share price targets for Dell Technologies Inc. (NYSE:DELL) is $155.52, which prices in a hefty upside over the current share price of $129.
As March 2024 ended, 82 hedge funds covered by Insider Monkey’s research were Dell Technologies Inc. (NYSE:DELL)’s stakeholders. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital owned the most valuable stake which was worth $891 million.
Looking at Dell Technologies Inc. (NYSE:DELL)’s latest share price trends, a guidance reduction, and the stable nature of its business, a forward P/E ratio of 16 isn’t surprising as it shows slower growth expectations compared to the broader market. As for the non existent AI margins, here’s the full snippet from the earnings call that led to the share price drop:
Toni Sacconaghi: Yes, thank you for the question. If I just look year over year at the ISG business, storage was perfectly flat. AI servers went from zero to 1.7 billion, which sort of suggests that traditional servers were flat. So really the only thing that changed was you added 1.7 billion in AI servers, and operating profit was flat. So does that suggest that operating margins for AI servers were effectively zero? And if that’s not the case, how do you square the circle with what I just outlined? Thank you.
Yvonne McGill: Okay, Toni, I’ll take that one. So when I look at the overall ISG performance from an operating income standpoint, storage, I’ll start with storage, right? So if the operating income was low in storage, you know that Q1 is seasonally our lowest revenue quarter from a storage perspective. When the revenue declines, the business descales, and so we saw that evidenced in the Q1 results. And while OpEx remained unchanged to the points you’re making, the operating rates declined. In traditional servers, we saw strength in large enterprise and large bid mix, so a shift there a bit, which, as you know, that drives lower margin rates. And when I look into Q2 and FY’25, though, I tell you that we expect ISG Opinc rates to improve, as we talked about in the guide, over the year and really deliver against our long-term framework, that 11% to 14%.
So, I think what we saw in the first quarter was multifaceted, but we do continue to expect recovery as the year goes on. And those AI-optimized servers, we’ve talked about being margin rate diluted, but margin dollar accretive. And so you’ll continue to see that evidenced in the results also.
