The AI boom has fueled massive investments in data centers and tech stocks have surged since early 2023.

While Nvidia and other AI leaders have seen strong gains, Dell Technologies (DELL) has remained undervalued despite its growing role in AI infrastructure.

The company has evolved beyond PCs, partnering with Nvidia to launch the “Dell AI Factory,” providing end-to-end AI solutions for enterprises. It also rolled out new AI-focused servers.

However, as-reported accounting masks Dell’s true profitability, which may be why the market hasn’t fully recognized its transformation.

As demand for AI infrastructure grows, Dell appears well-positioned for upside.

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The last few years will be remembered for the significant developments and investments in artificial intelligence. 

Billions of dollars have poured into high-growth areas like data centers, which are critical infrastructure powering the AI ecosystem.

Many technology stocks surged thanks to strong demand from the AI industry. For example, Nvidia’s (NVDA) stock price has risen 800% since the beginning of 2023.

The company has been a major beneficiary of expanding AI workloads in areas like machine learning and deep learning. 

Hyperscalers and cloud providers like Amazon (AMZN), Microsoft (MSFT), and Google (GOOGL) have all significantly increased their purchases of Nvidia’s GPUs and other AI hardware to support these workloads.

However, not all companies with exposure to AI have seen their stock prices reflect this opportunity.

Dell Technologies (DELL) is one such company that could be undervalued given its role in the AI sector.

Many still associate Dell with its legacy as one of the world’s largest tech companies and the biggest PC manufacturer. 

While personal computers remain a part of Dell’s portfolio, the business today is a dramatically different entity.

The company recognized the growing importance of data and artificial intelligence for businesses. 

This led to a focus on developing the infrastructure necessary for organizations to manage large data volumes, train AI models, and deploy AI applications.

A key element of Dell’s AI strategy is its collaboration with Nvidia. This partnership recently led to the announcement of the “Dell AI Factory with Nvidia.” 

This initiative offers enterprises an integrated solution for the entire AI lifecycle, from training to deployment. 

Dell states this AI factory will drive innovation in accelerated compute and data processing, streamline operations, and enable faster results in AI deployment. 

To support this, the company introduced new hardware for AI workloads. This includes the air-cooled PowerEdge XE9780 and XE9785 servers, and their liquid-cooled versions, the PowerEdge XE9780L and XE9785L. 

However, the market has not fully recognized Dell’s transformation, partly due to how financial performance is reported.

The company’s as-reported return on assets “ROA” has been improving in the past few years… although not by much.

When we clean up the accounting, the company’s actual performance becomes more apparent.

As-reported accounting makes Dell look like a cost-of-capital business, while Uniform accounting shows us the reality that this is a highly profitable company.

This discrepancy in performance could explain why Dell’s successful pivot might not be fully priced into its market valuation by investors.

Considering the company’s successful pivot to becoming an important provider of essential AI infrastructure, coupled with its strong enterprise presence and strategic alliances like the one with Nvidia, the company is well-positioned to capitalize on the rapidly expanding AI market.

The market has yet to fully account for this transformation, and Dell could offer substantial upside as its growth in this high-demand sector becomes increasingly evident.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research