Investor Essentials Daily

This old dog can still learn new tricks

May 27, 2024

The beginning of 2024 marked significant investment in artificial intelligence, with billions funneled into data centers essential for AI.

Technology stocks that are exposed to AI, especially NVIDIA (NVDA), have soared due to the high demand for AI.

While NVIDIA has thrived, companies like Dell Technologies (DELL), despite significant involvement in AI through initiatives like their partnership with NVIDIA to integrate cutting-edge Blackwell GPUs into their servers, are still viewed by the market as traditional firms with limited growth potential.

This perception may underestimate Dell’s potential in the AI market, suggesting a possible investment opportunity despite market skepticism.

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The start of 2024 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 almost doubled since the start of the year.

NVIDIA 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.

Some established technology players are still viewed by the market as legacy companies without meaningful growth potential.

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

On the surface, Dell may seem like a mature PC and server vendor with limited upside. Its revenue has grown at a modest single-digit rate over the past few years.

However, Dell has been making strategic moves to participate in the AI transformation. In March 2024, Dell partnered with NVIDIA to integrate NVIDIA’s new Blackwell GPUs into Dell’s PowerEdge servers.

The Blackwell GPU is NVIDIA’s latest, most powerful AI accelerator yet. It can provide over 20 petaflops of AI performance on a single GPU. This makes it highly suitable for data-intensive AI workloads.

Through the partnership with NVIDIA, Dell will be able to provide customers with optimized, turnkey solutions for deploying AI applications on-premises.

Analysts believe this collaboration positions Dell well in the AI infrastructure market. In a research note, Citi analysts said the partnership gives Dell the potential to gain a meaningful share in the high-growth AI hardware sector.

However, our EEA shows the market remains skeptical of Dell’s ability to capitalize on AI trends relative to analyst expectations, which could create an opportunity for investors.

Best regards,

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

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