Dell Technologies: Underrated Giant on the Verge of Potential Growth Surge

Investments in artificial intelligence (AI) continue to be a magnet for investors, particularly those targeting companies within the "Magnificent Seven" of the technology sector. However, other stocks such as Super Micro Computer, Broadcom, and Taiwan Semiconductor are increasingly coming into focus, establishing themselves as preferred choices in the AI domain. One stock that once stood high but has lost ground in recent months is the computer and data storage manufacturer Dell Technologies. The company recently reported its results for the second quarter of fiscal year 2025, which ended on August 2. While the company thrives in some areas, other segments disappoint. Dell's latest quarterly figures were fine, but not spectacular. However, investors seem to be losing confidence in the company prematurely. Dell divides its business into two categories: Infrastructure Solutions and Client Solutions. The infrastructure segment includes network and storage solutions for servers and data centers, while the client segment focuses on the sale of hardware devices to businesses and consumers. Total revenue in the last quarter amounted to $25 billion, representing a 9% year-over-year increase and 13% compared to the previous quarter. However, the lion’s share of this growth came from the Infrastructure Solutions segment, particularly network and server solutions. In contrast, revenue in the Client Solutions segment declined by 4%. Given the boom in data center services, investors expect Dell to generate growth from this business area and are therefore less enthusiastic about the company's other segments. Within the Client Solutions segment, commercial business revenue remained nearly unchanged, while the consumer segment saw a decline of 22%. Nonetheless, investors should not overinterpret these results. A closer analysis suggests that both Infrastructure Solutions and Client Solutions could be on the brink of a growth surge. Many of the most influential technology companies – including Microsoft, Meta, Alphabet, Amazon, and Tesla – have made it clear that increased investments in AI are a core part of their growth plans. These investments in data centers and chip manufacturing are likely to have positive long-term effects on Dell's infrastructure business. I believe that Dell's infrastructure business will gain substantial momentum as major technology companies upgrade their IT architecture. Another reason for my optimism regarding Dell is the immense potential in the Client Solutions segment. Both consumer and business investments in hardware, such as personal computers, are cyclical. With the increasing integration of AI into more devices, both businesses and consumers will need to upgrade their hardware. Dell is optimistic about the upcoming PC refresh cycle as the installed bases continue to age, Windows 10 reaches its end of life next year, and significant advancements are made in AI-enhanced architectures and applications. This hardware refresh cycle should bear fruit for Dell by the end of this year and early 2025. Dell's stock price has fallen by more than 20% over the past three months, leading to a significant valuation contraction. Dell’s forward price-to-earnings (P/E) ratio is just 14.7, below the S&P 500's P/E ratio of 22.4. In my opinion, investors are overlooking Dell's long-term potential. It is likely that Dell’s business will regain momentum only by the end of this year and in 2025. Now seems to be a good time to invest in the depressed stock, as significant gains could be realized from the accelerated growth of the Infrastructure Solutions and Client Solutions segments in the coming quarters.