We recently compiled a list of the Jim Cramer’s 10 Stock Picks You Need to Know. In this article, we are going to take a look at where Dell Technologies Inc. (NYSE:DELL) stands against Jim Cramer’s other stock picks.
In a recent episode of Mad Money, Jim Cramer views the current market as highly unpredictable and easily swayed by even the slightest news. He acknowledges that while some sectors are thriving, others are struggling, making it a mix of the best and worst of times depending on the industry.
“Look, this market is so ridiculous that you could knock it over with a feather or take it up with a breeze. I wanted to borrow from Charles Dickens: “It was the best of times, it was the worst of times.” But the simple fact is that this isn’t the worst of times—just the worst of times for stocks in certain industries, and the best of times for others. Or within the confines of some hideous action for the average, with the Dow sinking 626 points, the S&P plunging 2.12%, and the Nasdaq plummeting 3.26%. It was a nasty day, right into the close.”
Cramer explains that a seemingly minor purchasing management report caused a widespread sell-off, particularly hitting cyclical stocks, homebuilders, and tech companies connected to AI. Despite the panic, Cramer emphasizes that these sectors, especially semiconductors, oil, and housing, are actually performing well. The sell-off, in his view, was driven by irrational fears that these strong performances won’t last.
“Now, what makes this market so ridiculous in my eyes? We had some obscure purchasing management report that threw everything off this morning, causing a wholesale collapse of the cyclicals, along with the homebuilders and anything connected to technology, particularly the once-beloved data center plays with big AI exposure. Given the chaos after that manufacturing PMI number, you’d think the semiconductor, oil, and housing worlds were in free fall. But in reality, these companies are doing incredibly well. The sellers are just worried they won’t stay good for long.”
Pure Stupidity
He attributes the market’s reaction to what he calls “pure stupidity,” combined with the typical challenges the market faces in September. This seasonal weakness can become a self-fulfilling prophecy, leading to exaggerated reactions. Cramer believes that while the economy is slowing, the Federal Reserve is likely to cut interest rates in the coming weeks, which could benefit sectors like homebuilding.
“Frankly, I think this action represents pure stupidity, combined with the fact that the market is typically challenged in September. That’s what’s going on here, something that’s true empirically—to the point where it can become self-fulfilling. That’s how it felt today. Sure, the economy is slowing, but in a few weeks, the Fed’s going to cut interest rates, and you’ll wish you’d stuck with a lot of what was on sale today, like the homebuilders. They are the real winners in any move that would take down mortgage rates, which is what would happen if the Fed cuts.”
A Repeat of the 1999 Dot-Com Bubble?
Jim Cramer acknowledges that if a scenario like 1999 were to repeat, it could be disastrous for chipmakers and the tech industry surrounding AI. He respects Cembalest as one of Wall Street’s top strategists but feels his comparison to the 1990s might be too harsh. Back then, many companies were spending recklessly, but today, the company and its clients are among the most financially stable companies in history. The company faces little real competition, with no other companies close to matching its capabilities.
“A repeat of 1999 would indeed be devastating for the company and all the tech that surrounds it. As much as I think Cembalest is the best pure strategist on Wall Street—the best I’ve found—I found this piece a little harsh because we had many fly-by-night outfits spending like drunken sailors back in the 1990s. Now, though, the firm and its clients are some of the most well-endowed companies ever. The company doesn’t have any real competition, and no one is near them by their own proclamations.”
Nvidia CEO Jensen Huang has repeatedly emphasized that if tech giants don’t invest now, they’ll miss out on future opportunities when they lack the necessary infrastructure. He’s proven that the company’s platform pays for itself quickly, which was not the case in 1999.
“As the company’s CEO Jensen Huang has pointed out many times, if the tech titans don’t spend, they’re out of luck when some great use cases come along, and they don’t have the infrastructure for it. Remember, Jensen has proved that the platform pays for itself very quickly. That sure wasn’t the case back in 1999, was it? Of course, the company’s stock has become a total pariah right now after this amazing quarter because the world suddenly seems convinced that AI spending will peak soon, at which point it’s all over but the shouting. “
Despite the firm’s impressive recent quarter, its stock has become unpopular, with many believing that AI spending will soon peak and that the stock’s rise was overblown. Investors seem eager to push the stock back to its early August lows, around $90 after the company only delivered a major upside surprise, not the massive one they had expected.
“Stocks are getting slammed because most investors think the company’s run-up was too extreme, given that the company only reported a major upside surprise—not the kind of insanely huge upside surprise they’d come to expect. The sellers are eager to take the company back to where it was trading during the last visit to the penalty box in the first week of August, with the stock ticking as low as $90 and change.”
Cramer anticipates that sellers will return in force following news that the Justice Department has subpoenaed the company in an antitrust probe. However, he downplays this development, noting that such subpoenas are standard practice, questioning why the Justice Department didn’t simply ask the company some questions instead.
“I’m sure the sellers will be right back tomorrow morning after we learned tonight that the Justice Department has hit the company with a subpoena over an antitrust probe. Now, who cares? That’s standard practice. It’s shot first, second, and third. Though with the company right now, no one’s thinking, “Well, wait a second, why didn’t the Justice Department just ask them some questions?”
Our Methodology
This article covers a recent episode of Jim Cramer’s Mad Money, where he reviewed several stocks. It highlights ten large-cap companies that he recommended and looks at how hedge funds view these stocks. The article also ranks these companies based on the level of hedge fund ownership, from the least owned to the most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of IT experts discussing the latest network security trends over a laptop screen.
Dell Technologies Inc. (NYSE:DELL)
Number of Hedge Fund Investors: 88
Jim Cramer highlights Dell Technologies Inc. (NYSE:DELL) as a strong investment due to its significant role in providing servers for data centers and developing AI-integrated PCs. Although there was some confusion about the recent numbers, Cramer believes Wall Street’s initial positive reaction was justified. Dell Technologies Inc. (NYSE:DELL)’s stock initially rose over 4% last Friday but later lost those gains. Despite this, Cramer sees value in owning Dell Technologies Inc. (NYSE:DELL) shares.
“This story is all about Dell making servers for the data centers that power artificial intelligence, along with new lines of AI-infused PCs. Unfortunately, the numbers were somewhat confusing, but I think that Wall Street got this one right—at least initially—as the stock timely rallied more than 4% last Friday before giving back all those gains today. Yep, Dell’s still worth owning here, and I’m going to tell you why. Let’s start with the numbers: Dell delivered a meaningful revenue beat driven by 38% growth from its Infrastructure Solutions division. Much better than expected, mostly thanks to heavy investment in AI infrastructure by corporate clients. In fact, their server and networking sales were up 80% year-over-year.
Dell’s other business, the Client Solutions Group, which includes the PC business, came in a little light, but not light enough to offset the strength in the infrastructure side. In the earnings release, Dell Vice Chairman and COO Jeff Clarke, an old hand, explained that “our AI momentum accelerated in Q2, and we’ve seen an increase in the number of enterprise customers buying AI solutions each quarter.” Notice the word “solutions”—I think that’s really important. It’s more than just a box. He added that AI-optimized server demand jumped by 23% compared to the previous quarter.
Now, last time Dell reported, some investors didn’t like the margins from Dell’s infrastructure business. Long story short, their earlier AI hardware sales mainly came from selling servers to large hyperscalers—here we’re thinking about Alphabet, Amazon, Meta—and those companies can drive a hard bargain. Dell was confident that the margins would improve later on as they sold more networking and storage equipment along with services, but hardly anyone was willing to give them the benefit of the doubt. Except me, maybe. That’s because I saw that Jeff was with Jensen—of course, Jensen Huang, CEO of Nvidia—at the GTC conference I attended.”
In fiscal year 2024, Dell Technologies Inc. (NYSE:DELL) achieved a 5% revenue increase, reaching $105 billion, showcasing its solid market position and operational efficiency. Dell Technologies Inc. (NYSE:DELL) is well-positioned to benefit from the rising demand for enterprise solutions, such as hybrid cloud environments and edge computing, which aligns with the growing trend of digital transformation.
Dell Technologies Inc. (NYSE:DELL)’s strategic acquisitions and investments, including its purchase of VMware and its focus on AI and cybersecurity, are set to boost its competitive advantage and drive future growth. These initiatives demonstrate Dell Technologies Inc. (NYSE:DELL)’s commitment to expanding its product offerings and staying ahead in the evolving technology sector. Additionally, Dell Technologies Inc. (NYSE:DELL)’s diverse range of products, from servers and storage solutions to PCs, enables it to cater to various customer needs effectively.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its first quarter 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) reported results that exceeded earnings expectations and announced a better than expected AI-optimized server order pipeline. We expect Dell to participate in the growth of artificial intelligence hardware in its server, storage and personal computing franchises. Long-term, we like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
Overall DELL ranks 4th on our list of Jim Cramer’s stock picks you need to know. While we acknowledge the potential of DELL as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DELL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
