Dell Stock Jumps on AI Server Boom, Data Center Company Buys GoPro

Zaid Admani (0:00)

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Wednesday, September 2nd. In today's episode, we'll recap Dell's monster earnings and explain why the AI infrastructure boom is getting even bigger. We'll also tell you why a data center company is buying GoPro. Then stick around to the end of the show to find out the latest team to be added to Stan Kroenke's sports portfolio. We got a great show for you today.

Let's go.

September is off to a rough start. The S&P 500 dropped 0.7% on Tuesday and the NASDAQ dropped 1%. Stocks have now dropped for three straight sessions with each subsequent day being worse than the last. And the main story here continues to be the bond market. Bonds are selling off all over the world, causing yields to spike. US 10-year treasury yield climbed above 4.8%, which is its highest level in nearly three years. Japan's 10-year yield hit 3% for the first time in about 30 years, while yields in the UK, Germany and France have all jumped to multi-year highs. Historically, we don't really spend much time talking about the bond market on this show, because honestly, talking about government debt is pretty boring, and usually there's not that much action happening in the bond market, but that hasn't been the case for the last two to three weeks. And the story has been the same here. Bond yields are rising because of two main reasons, inflation and government deficits. Oil prices are rising again because of the Iran War, which is bringing inflation concerns back up. Brent crude has climbed roughly 13% over the past month, and is back above $94 a barrel. And higher inflation means investors demand higher yield to lend money. And the second more important reason for the spiking yield is that governments around the world have borrowed a ton of money. In fact, the US government debt recently crossed $40 trillion, so investors are starting to demand more yield for financing all that borrowing. There's also an AI element at play here. We actually broke all this down in a deep dive a couple of weeks ago. So go check out that deep dive if you want to learn more about why bond yields are spiking. We'll put a link in the description. Now, funny enough, the people who could do something about this were all in a room this week. The world finance leaders met at the G20 summit in Asheville, North Carolina this week, and Treasury Secretary was asked about the surging debt, and he claimed the solution is simply to grow our way out of this through tech and AI. For now, though, bond market investors aren't buying it. So the bond market could be the main character of the finance world in the second half of the year, and it could be a headwind for the stock market and the economy because higher yields results in higher borrowing costs. So we'll continue to stay on top of everything happening in the bond market along with everything else. So definitely get subscribed to the podcast if you haven't already and tune in every day to stay in the loop.

Let's run through some headlines. Starting with Dell. Dell reported earnings last night and they crushed it across the board. You know, most people might still see Dell as a company that sells computers, but they've basically become an AI infrastructure company and business is booming right now. Revenues jumped 58% year over year in Q2 to nearly $47 billion. And adjusted earnings came in at $7.04 per share, both those numbers blowing estimates out of the water. In fact, the company's earnings per share was up 3X from Q2 of last year, which is absolutely insane. Obviously the AI server business is the growth engine here. Dell generated $16.4 billion in AI server revenue last quarter, double what it did a year ago. And the company says they have a $95 billion backlog of AI server orders waiting to be filled. These servers are basically computers packed with Nvidia chips that companies load into data centers to train and run AI models. But what I found to be most interesting from this report is that Dell is also selling a ton of traditional servers packed with CPUs. Dell's traditional server networking segment revenues jumped 122%, which is a faster growth rate than the AI server business. But this is also AI related because AI agent workloads need CPUs rather than GPUs, so CPU servers are also in high demand these days. And Dell isn't expecting things to slow down anytime soon. The company raised the revenue forecast for 2026 from $167 billion up to $192 billion. So that's a $25 billion rise in their sales forecast and their earnings guidance went from $17.90 a share up to $25.50 a share. So Dell is crushing it right now and that's why the stock has gone up over 230% this year heading into the earnings report and it's up another 9% this morning in reaction to the earnings. And you know, if you look at Dell stock, it was trading at 11 times forward earnings for five years, but now the stock is trading closer to 20 times forward earnings. So the market has finally stopped pricing Dell like a PC company and started treating it like an AI company. In fact, at this point, I wonder if Dell will just stop making computers or maybe spin off that business into a separate company, kind of like what HP did.