DELL Stock Quadruples Over 2026: Still a Buy Amid AI Data Center Buildout?

SPEAKER_1 (0:00)

Time to go deep on Dell. This is our tech spotlight. Ryan Kelly, CIO of Legato Financial is with me. So let's talk about Dell. There's been some good news for Dell. I'll start with the glass half full. Let's start there, even though the stock's down 4% today.

Where do you think Dell's best position is here?

Ryan Kelly (0:23)

So Dell is a very interesting company, much like Intel and AMD.

It's basically tripled year to date. So you've had a tremendous move. At the same time, unlike those two companies, the PE is still decently low on Dell. And you've got a number of tailwinds. You've got the massive numbers of AI specific data center servers that they're selling, as well as the upgrades that they're doing on their existing asset base among their more traditional customers. And then more traditional customers are also doing more proactive upgrades to not only bring some of these AI capabilities in house in some cases, but also just to increase their general compute and ability to interface with what employees are now doing with agentic AI.

SPEAKER_1 (1:13)

And so at this point now, the question was as we see the upgrades in the data centers, that's at least part of the good news there. Do you expect that trend to continue?

Ryan Kelly (1:27)

Well, right now, Dell has close to six quarters of backlog where they are still trying to produce servers to go into data centers. Now, as I understand it, that's not really held up by their own manufacturing, but rather by the ability to source some of those more rare components. So the question becomes, once these components become more widely available, if manufacturing kind of catches up with the demand, will these data centers still go through Dell and leverage their full kind of base and supply?

Or will they go on their own and source those components individually?

SPEAKER_1 (2:04)

I understand. At this point, but what are the headwinds though? When it comes to memory, where does that fit in?

Ryan Kelly (2:11)

Oh, memory is definitely squeezing Dell's profits. Some of those servers that they're putting in, the memory is becoming a major source of costs, in some cases up to half the price of the server. So, there are definitely headwinds there. Memory is a problem.

But at the moment, Dell, unlike HPE, has been willing to accept some lower margins in order to take market share and to continue to deliver those systems.

SPEAKER_1 (2:43)

And so, as we see the margins getting squeezed, do you think a name like Dell, that you talked about some of the run up that we've seen in the stock here, what kind of outlook does it have, particularly when you look at the valuation right now, with the margins getting squeezed from memory, but having the potential of the data center build out, you know, when you try to balance that?

Ryan Kelly (3:05)

Yeah. So we are looking at a PE that's over 30, which, you know, normally you wouldn't love, but then again, they have increased sales by 50 percent, and I believe that their net profit is up by well over 100 percent. So when you look at those numbers, that valuation isn't stretched yet, in my opinion. The problem is, again, how long does this last? Is this a one-time kind of push on these data centers? Where again, they move away from Dell in the future, and they have to go back to their traditional book of business.

One really interesting point though, Dell has said that 70 percent of their installed servers, just their normal servers within companies, are more than nine years old, several generations old, and a lot of companies are choosing to go ahead and try and update or upgrade those systems at the moment. You have that as a tailwind as well, that could potentially make up for some of the slowdown in the potential just pure data center AI servers.

SPEAKER_1 (4:09)

When we think about the lower margins, Dell is grabbing some of the business, but there is lower margins. Is this a Dell problem, or is there just better players out there?

Ryan Kelly (4:23)

I don't know that there's necessarily better players. I think that they've been willing to sacrifice a little bit of that margin to get the market share.

You see, again, talking about HPE, they also have a backlog, but it's significantly smaller. They're not going as aggressively in with the data center kind of play. And then at the same time, though, you also have Supermicro that's going pure data center, lower margin, and just trying to crank out servers into that market. So as long as memory remains this difficult to get and the prices have increased this much, I do think it's going to be a problem for anyone trying to put in major amounts of compute.