Dell should keep shining in Nvidia’s halo

Nvidia CEO Jensen Huang and Dell CEO Michael Dell at the Dell Technologies World conference. PHOTO: BRIDGET BENNETT/BLOOMBERG NEWS
Nvidia CEO Jensen Huang and Dell CEO Michael Dell at the Dell Technologies World conference. PHOTO: BRIDGET BENNETT/BLOOMBERG NEWS


The booming demand for AI servers is boosting the storied tech giant as the PC industry recovers.

All those Nvidia chips have to plug into something. That’s turning into a very profitable reality for Dell.

The 40-year-old company that started life specializing in made-to-order personal computers has become one of the hottest names in the artificial-intelligence craze. Dell’s market value has more than tripled over the past 12 months. That began when Nvidia gave a blowout sales forecast indicating the level of demand for its chips by companies looking to build generative AI services such as ChatGPT. Dell’s stock price has also more than doubled since the beginning of the year.

Dell is one of the world’s largest tech companies by annual revenue, selling everything from PCs to data storage arrays to IT services and software. The AI boom is specifically benefiting the company’s server business as Nvidia’s GPU, or graphics-processing-unit, processors require specialized ones with high-performance memory and other key components.

Investors’ enthusiastic reception sets a seemingly high bar for Dell ahead of its next earnings report, set for Thursday afternoon. Dell’s server revenue beat Wall Street’s projections by 16% for the fiscal quarter that ended in July 2023, giving the stock a 21% lift the following day. In March, Dell reported that its AI server backlog nearly doubled during its fiscal fourth quarter. That sent the stock up 32% the following day.

Analysts expect the company’s server revenue to have jumped 31% year-over-year to a little over $5 billion in the April-ending quarter. That would be the best growth seen for that segment in more than four years. Super Micro Computer, a much smaller company that focuses on specialized AI servers, saw its revenue triple year-over-year during the March quarter. That actually fell a bit short of Wall Street’s projections, sending that red-hot stock down 14% the following day.

Dell should be on more solid footing. Its business is more diversified than Super Micro’s, which also has a higher-risk business model that frequently results in negative free cash flow. The PC market that accounts for more than half of Dell’s revenue has been showing signs of improvement lately with industry sales rising in the March quarter for the first time in two years, according to IDC.

A new class of machines with on-device AI is also hitting the market this year, creating the potential for further uplift. Bernstein analyst Toni Sacconaghi rates Dell’s shares as a buy, even while admitting to worries about the sustainability of the AI server business.

“That said, we see several other levers (storage, traditional servers, and AI PCs), which can be meaningfully accretive to EPS in FY25," Sacconaghi wrote in a note last week.

Despite the runaway performance of both stocks, Dell trades at a 22% discount to Super Micro, as a multiple of forward earnings. But like Super Micro, Dell’s AI numbers will play a major role in how investors grade the latest results. The most closely watched figure will be its AI server backlog, which nearly doubled this past quarter to $2.9 billion. In a report last month, Michael Ng of Goldman Sachs said a $2 billion gain in backlog during the April quarter would give Dell visibility into $5 billion of AI server revenue for the current fiscal year. He actually projects AI server revenue hitting $6.8 billion for the year.

That is doable, especially given the strong demand Nvidia said last week that it expects to see for its new class of chips launching later this year. Dell’s main constraint might be getting its hands on enough of those chips given the tight supply seen across the industry.

But Ng noted that Dell’s server customers “appear to have priority in GPU supply." Dell also has a tight relationship with Nvidia, with Chief Executive Officer Jensen Huang joining Michael Dell onstage at Dell’s annual developer conference last week and singling him out from the audience during the keynote of his own big show in March.

“Nobody is better at building end-to-end systems of a very large scale for the enterprise than Dell," Huang said at that event.

None of Dell’s competitors in the IT equipment space got such a shout-out. But turning those words into actual sales will be vital considering the premium Dell is now fetching to more traditional rivals such as Cisco and Hewlett Packard Enterprise. It has some big numbers to serve up.

Write to Dan Gallagher at

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