Is Dell Technologies (NYSE:DELL) a dinosaur in 2024? Not anymore! The company is transforming into an AI server infrastructure provider. Consider Dell stock if you like investing in underdogs with compelling turnaround stories.
Today, we won’t delve deeply into quarterly earnings reports. Instead, we’ll be sourcing our information from very brief postings on X (formerly known as Twitter).
Trust me when I tell you that these aren’t trivial X postings. They contain potentially game-changing announcements, and growth investors as well as value seekers will definitely want to pay attention.
This Is Huge News for Dell
Let me back up for a moment and recap some background information. Tesla (NASDAQ:TSLA) CEO Elon Musk started an AI-focused company called xAI. Furthermore, xAI is developing Grok, which is an AI chatbot that’s meant to compete with OpenAI’s ChatGPT.
Now, let’s fast-forward to June 19. That’s when Dell Technologies CEO Michael Dell posted on X, “We’re building a Dell AI factory with @nvidia to power @grok for @xai @elonmusk.” Just the revelation that Dell is collaborating with the almighty Nvidia (NASDAQ:NVDA) is already huge news for Dell Technologies.
Also on June 19, Musk clarified in a X posting, “To be precise, Dell is assembling half of the racks that are going into the supercomputer that xAI is building.”
Then, that same day, Musk posted on X that “SMC” or Super Micro Computer (NASDAQ:SMCI) will build the other half of the AI-supercomputer racks.
At this point, if you envision a bright future for xAI and Grok, then you might be tempted to load up on Super Micro Computer stock.
You can do this if you’d like, since an arrangement with Musk is usually great news. Yet, I encourage you to consider investing in Dell, as well.
Dell: From Underdog to AI Hero?
My objection to investing in Super Micro Computer right now is that the market already assigned a very rich valuation to the company. There’s no underdog story here, since Super Micro Computer is already the top dog.
In contrast, Dell Technologies has been out of favor, and perhaps even a punchline, for years. After all, young people don’t rely on PCs anymore. However, Dell’s reinvention as a developer of AI-ready PCs means that the company can rise from the ashes in 2024.
Actually, the company is already rising and reclaiming some of its former glory. Dell stock’s year-to-date rally has been impressive, but it’s not overdone. The company could still be considered an underdog, or at least not a market darling yet, based on Dell’s valuation.
We can apply a couple of commonly cited metrics to support our point. On a trailing 12-month basis, Dell’s GAAP price-to-earnings ratio is 28.27x. For comparison’s sake, the sector median P/E ratio is 30.22x, and Super Micro Computer’s P/E ratio is 46.18x.
Some folks prefer to use the price-to-sales ratio instead of the P/E ratio, and that’s not a problem. As it turns out, Dell Technologies’ trailing 12-month P/S ratio is 1.1x, versus the sector median P/S ratio of 2.98x.
Moreover, Super Micro Computer’s P/S ratio is 3.8x. Thus, it’s not difficult to determine which company involved in the Musk deal has the more attractive valuation.
Dell Stock: The Turnaround Story Is Just Getting Started
Dell Technologies still isn’t a heavily favored technology company like Super Micro Computer or Nvidia are. Yet, the deal with Musk and xAI should put Dell in the limelight and bring some reluctant investors into the fold.
Super Micro Computer stock could also be worth buying if it comes down 20% or 30%. However, if you want to get involved in a turnaround story that’s just getting started, you can buy Dell stock right now. It’s a great way to get immediate AI-server industry exposure for your portfolio.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
