Is It Too Late to Buy Dell Stock?

Computer systems builder Dell (NYSE: DELL) is experiencing a golden age. The company builds a ton of servers to train or operate artificial intelligence (AI) systems nowadays, and its stock has soared since the ChatGPT boom started.

Dell shares have jumped 127% over the last two years. That's nowhere near the 430% increase AI chip leader Nvidia (NASDAQ: NVDA) posted over the same period, and even further behind fellow AI systems builder Super Micro Computer 's (NASDAQ: SMCI) 932% gain.

Still, Dell's stock more than doubled in two years. Is it too late to jump aboard the bandwagon and buy Dell stock today?

Dell by the numbers

The AI boom has slowed down in recent months. Nvidia's stock is down 26% from its all-time high in June, and Super Micro fell 49% from an early-March peak. Dell followed the same trend, taking a 45% hit in the last two months.

Dell's max price was short-lived. Enthusiastic investors drove the stock price 51% higher in the four weeks before Dell reported first-quarter results.

When the report hit the newswires, management's guidance for fiscal year 2025 failed to impress. Dell expects roughly 8% year-over-year sales growth this year, up from a 14% full-year dip in last year's results. That was above the consensus analyst view of roughly 7% growth, but not the AI-driven victory march the most bullish Dell investors wanted to see.

So the stock fell 20% the next day and continued to slide for weeks. Here in early August, Dell shares are trading at modest valuation ratios, such as 19.6 times earnings or 0.76 times sales. These low ratios make the stock look like a steal next to soaring AI stocks like Nvidia and Super Micro:

Data source: Finviz.com on Aug. 6, 2024. FCF = free cash flow. Table by author.

Is Dell a bargain buy or a troubled business?

So Dell trades at much lower valuation ratios than the leading AI-industry peers. Does the company deserve a more generous market treatment?

Well, at least some of Dell's AI systems success seems to spring from rebates. Along with Super Micro, Dell's gross profit margin is dipping lower in recent reports. There may be a price war brewing in the AI systems market. Dell CFO Yvonne McGill called it "a more competitive pricing environment" in the first-quarter earnings call.

Tomay-to, tomah-to. Same thing, different name.

So Dell is operating in a large AI market, but profit margins are shrinking in this explosive growth sector. At the same time, Dell's management projects lower top-line revenue growth than Super Micro. Skyrocketing growth is the way to earn nosebleed-inducing valuation ratios , and Dell isn't running that race.

To buy or not to buy Dell, that is the question

In the end, I'm tempted to pick up a few Dell shares while they're cheap. Every AI stock doesn't have to chase stellar growth, and there's a place for robust value picks in this booming market trend, too.

That said, Dell isn't a picture-perfect value investment either. The company just announced a deep restructuring of its sales force, involving an unknown number of job cuts, in an effort to cut costs and refocus on the AI opportunity. Management presents this project as a growth-focused "leaner and meaner" strategy, but cost-cutting programs always come with faint echoes of desperation.

So I'm not drooling over Dell as an investment opportunity right now. Its low valuation is matched by modest growth plans and signs of deep-rooted strategy problems. A small investment could make sense, as a speculative bet on better days and stronger long-term AI growth, but you should take it easy with this stock.

Anders Bylund has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy .