When it comes to investing in artificial intelligence (AI), it's no secret that the " Magnificent Seven " companies stand in a league of their own. While megacap technology stocks have recently performed strongly, smart investors know that there are some solid opportunities out there flying under the radar.
One company that I continue to see as both misunderstood and underappreciated is Dell Technologies (NYSE: DELL) . For years, Dell was synonymous with personal computing hardware.
While this is still very much a big part of Dell's operation, the company is quietly emerging as a formidable competitor in the artificial intelligence (AI) realm.
Let's dig into how Dell is disrupting the AI arena, and assess why now could be a lucrative opportunity to scoop up some shares and hold them for the long run.
Dell's turnaround could just be getting started
Dell reports its business results across two categories: client solutions and infrastructure solutions.
Client solutions comprises Dell's personal computing products while the infrastructure business is home to the company's storage and server solutions. Both of these businesses have the potential to benefit from AI demand. However, I think IT infrastructure and PC hardware are also relatively commoditized businesses with intense competition.
The financial results seen in the charts below undermine the risks with Dell. Revenue is actually considerably lower compared to prior periods, and gross margin has been flat for quite some time.
On the surface, the trends below don't exactly bode well. However, I see Dell as a compelling turnaround story.
Let's explore how AI will define the next chapter in Dell's evolution.
DELL Revenue (Quarterly) data by YCharts
AI could unlock a new chapter for Dell
Looking at the financial statements alone won't help much when trying to assess the overall health of a business. Rather, investors should listen to management during earnings calls and analyze investor presentations when they are published.
While the financial profile above might not be inspiring, Dell provided investors with a lot of useful detail during the company's most recent earnings report.
For the company's first quarter of fiscal 2025 (ended May 3), the client solutions business grew 3% year over year to $12 billion in revenue. Although this level of growth is a bit mundane, consider the state of the macroeconomy over the last couple of years.
Consumers and businesses have been affected by rising interest rates and lingering inflation. This has caused a widespread pullback in discretionary spending and corporate budgets.
Nevertheless, Dell announced five new PC models that management believes will ignite some future growth for the client solutions business as AI demand fuels a new cycle of PC purchasing.
Where I see Dell's real opportunity is in infrastructure services. For the quarter ended May 3, the company's infrastructure solutions group reported $9.2 billion in revenue -- up 22% year over year.
Within infrastructure solutions, servers and networking accounted for 60% of the segment's total sales. Moreover, revenue from servers and networking grew a whopping 42% year over year.
Additionally, Dell shipped $1.7 billion of AI optimized server solutions during the first quarter and grew its backlog to $3.8 billion.
While AI server products are clearly acting as a bellwether for Dell's entire business right now, I'd also like to showcase the quality of the company's customer base. A few weeks ago, media outlets reported that Elon Musk's AI start-up, xAI , is working closely with Dell and Super Micro Computer to help provide server racks.
Although it's hard to know where this deal sits from a negotiation standpoint, I'm encouraged that Dell is being considered to work with another high-caliber IT architecture provider in Supermicro .
Image source: Getty Images.
Is now a good time to buy Dell Stock?
At the time of this writing, Dell trades at a forward price-to-earnings (P/E) ratio of 18.
By comparison, Supermicro's forward P/E is 27 while the S&P 500 's is about 22.
Perhaps Dell's discount to the broader market and a close peer is due to the company's growth. While that might make some sense, I'd argue that Supermicro's premium over Dell could be equally unjustified.
As AI applications continue to unfold, I think Dell is well positioned to continue playing an important role in infrastructure solutions.
Moreover, management sees this as a long-term theme for Dell. The company says it has "seen an expansion in the number of enterprise customers buying AI solutions which remains a significant opportunity for us given we are in the early stages of AI adoption."
I think many investors see Dell as an archaic PC business and are not accounting for the company's role in AI-powered IT solutions. I see Dell as a compelling opportunity that investors should buy now and prepare to hold on to for a long time.
The AI story is still in its early chapters, and I think Dell's renaissance is just beginning.
Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
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