Dell: 85% P/E Expansion With Margin Compression Makes The Stock Risky

Summary:

• Dell’s stock has surged 433% over five years, despite flat revenue, halved FCF, and a 28% drop in EPS.
• Dell’s P/E ratio expanded by 50% to 24, and its P/FCF ratio rose from 8 to 28.6, driven by AI exposure.
• Strong demand for AI-optimized servers has doubled customer demand, creating a significant backlog securing future sales.
• Despite AI server demand, Dell admits AI servers are margin rate dilutive, not margin dollar accretive.
• The upcoming earnings call may be a turning point to understand if Dell’s prospects justify the current valuation.

How Dell Surprised The Market

Who would have guessed at the beginning of 2023 that Dell (NYSE:DELL) would have trounced a strong market that delivered a 57% total return?

What is even more striking is that Dell’s fundamentals have indeed

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