Dell Technologies stock has continued its strong rally this year, making it one of the top gainers in the S&P 500 Index. It has soared by 347% this year, bringing its market capitalization to over $365 billion, with Michael Dell’s net worth rising to $266 billion. So, with the stock being highly overbought, does it have more upside to go?
Dell stock has jumped amid the ongoing AI boom
The ongoing AI boom is benefiting all types of companies, and Dell is one of the top beneficiaries. Its latest financial results showed that demand for its products has continued soaring, with guidance suggesting that it has more upside to go.
The results showed that its revenue jumped by 58% in the second quarter to $47 billion, with most of this growth coming from its Infrastructure Solutions Group (ISG) business, which made over $31.8 billion in revenue. Its AI-optimized servers generated $16.4 billion in revenue during the quarter, with its backlog soaring to $95 billion. Most of this demand is coming from neoclouds, sovereigns, and enterprise customers.
Dell’s Client Solutions Group (CSG) revenue also continued rising during the quarter. It generated over $15 billion in revenue, up by 20% from the same period last year.
Altogether, the management team expects that the revenue and backlog growth has more room to go. For the year, the average revenue estimate among analysts is $193 billion, up by 70% from a year earlier. This growth will then be followed by $225 billion next year. Dell often does better than estimates, meaning that the real numbers will be higher.
Dell has managed to convert its revenues into profits, with the gross margin rising to 78% and its operating margin hitting 15%.
Dell Technologies remains undervalued
Despite the ongoing revenue and profitability growth, the company remains highly undervalued, with its forward price-to-earnings ratio being just 22.16. This figure is much lower than other companies in the AI industry. AMD has a forward multiple of 85, while Marvell Technologies has a multiple of 68.
Nvidia’s forward price-to-earnings ratio of 25, while Lumentum and Coherent have multiples of 52 and 35, respectively. The company’s Rule-of-40 multiple is encouraging. Based on its forward revenue growth of 36 and its net profit margin of 11, the company has a multiple of 47%.
Analysts also maintain a bullish outlook for the company, with Mizuho having a target of $650, while TD Cowen sees it rising to $550. Daiwa Securities has a target of $625, while RBC sees it rising to $640.
Technicals suggest Dell stock rally is overstretched
Dell stock chart | Source: TradingView
While Dell’s shares are in a strong bull run, technicals suggest that the rally is highly stretched and may reverse soon. The Relative Strength Index (RSI) has formed a bearish divergence pattern, which happens when it is falling as the price continues rising.
The stock remains above the 50-week Exponential Moving Average (EMA), which stands at $333. These technicals suggest that the stock may reverse in the coming weeks because of a situation known as mean reversal. Mean reversal is a situation where an asset drops to move back to the historical average.
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