Dell stock has stalled since May: will it pop or crash?

Dell Technologies stock has moved sideways since May, when it peaked at a record high of $469.60. It retreated to $412 as investors remained jittery about the AI sector and its hefty valuation metrics. Still, despite the pullback, it remains 274% above its lowest point this year.

Dell stock has benefited from the AI boom

Dell Technologies is a top technology company that operates in two key segments: Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG). ISG sells products like AI-optimized servers, traditional servers and networking, and storage solutions. Its CSG business includes products like desktops, notebooks, and workstations.

Dell’s business has done well in the past few months because of the ongoing artificial intelligence boom, which has been driven by its servers and storage solutions.

The most recent financials showed that its business continued growing as the AI buildup phase gained momentum. Its quarterly results showed that revenue jumped 88% in the first quarter to $43.8 billion. 

The rising server and networking solutions helped to push its profitability higher. Its earnings per share (EPS) soared by 282% YoY to $5.24, while its free cash flow rose to $4.1 billion.

Dell’s ISG revenue soared 181%, with its AI-optimized servers rocketing by 757% to $16.1 billion. Its PC business has also done well, with its revenue soaring by 17% to $14.6 billion. 

Growth to continue, but valuation concerns persist

This management believes that the business has more room to grow in the near term. For example, the second quarter revenue is expected to jump to about $45 billion, while its adjusted EPS will soar by 164% to $4.48. 

For the year, the management sees its revenue soaring 47% to $165 billion. These are strong numbers, especially for a company that was started 42 years ago and is a sign that it continues to evolve.

Other similar companies have done well this year. HP Enterprise (HPE) has jumped by 135% from its lowest point this year, while Lenovo Group has jumped by 143% since January, making it the best-performing company in the Hang Seng Index.

Dell’s next earnings are expected to show that this momentum continues, as we have not seen a slowdown in the data center industry. Also, companies like Samsung and Micron have all published strong numbers, a sign that the growth momentum accelerated. 

The challenge, however, is that the server and storage business has always been cyclical, with eras of booms being followed by periods of slumps. As their prices jump, manufacturers tend to boost production, which increases the supply. 

Also, there are concerns that Dell has become highly overvalued, with the forward PE ratio rising to 24, more than double its five-year average. 

Dell stock technical analysis

Dell Technologies stock chart | Source: TradingView

Technicals show that the Dell Technologies stock has moved sideways in the past few weeks, remaining inside the narrow range of between $360 and $469. There are signs that it has formed a double-top pattern.

The stock has also formed an island reversal pattern, which normally happens after an asset gaps upwards. Its MACD indicator formed a bearish crossover and has continued falling.

Therefore, there is a risk that the stock will drop further in the near term, potentially to the support level of $360. A move below that level may drop further to the key support of $300.