One "old tech" stock that has emerged as a genuine artificial intelligence player this year is Dell Technologies (NYSE: DELL) .
Dell, of course, started as a personal computer giant, after founder Michael Dell began constructing PCs out of his dorm room and selling them directly to consumers. Fast-forward to today, and Dell has become one of the biggest enterprise and personal computer vendors, as well as the largest branded enterprise server company after buying server giant EMC in 2016.
As a result of enthusiasm for new AI servers, the stock is up 52.8% this year. But on the recent earnings release, management gave three big reasons why Dell should see strong growth continuing into 2025.
An AI pipeline "multiples" of current backlog
Dell had sold off after its first quarter earnings report back in May, as analysts came to doubt the margins it was getting on its AI servers. But Dell's AI-optimized servers achieved sequentially improved margins, and operating margins for the overall server business improved from 8% to 11%.
That should have allayed investor fears, as should management's commentary about future demand. Some investors have wondered how long the AI spending boom can last, but Dell said there was really no letup in demand on that front.
Dell made $3.2 billion in AI-optimized servers out of $7.7 billion in server and networking revenue in Q2, up 23% sequentially. And while Dell noted its AI server backlog was "only" $3.8 billion, up only 19% sequentially from Q2 and showing a potential deceleration, management noted demand continued to increase, with a potential pipeline that is "multiples" of the current backlog.
While skeptics may note that a pipeline isn't in fact the same as firm orders, management hinted this was probably a supply issue, not a demand issue:
Deployments and scheduled deliveries to customers is what we have to manage through again -- much of this is very complex deployments: readiness of a data center, readiness of power, readiness of a cooling; if its direct liquid cooling, the ability to have water in data center. And all of that infrastructure has to be put in place and coordinated with the delivery of a GPU in a server. And that's what we're working through. There's clearly opportunities that we're working across our customer set of what technologies they want to deploy. ... Again, I try to reinforce, five-quarter pipeline is multiples of the backlog. There's demand out there.
CEO Jeff Clarke also noted many enterprises are still in the "early stages" of AI deployment. So there doesn't appear to be any change in the high demand for AI.
Traditional servers coming out of the "longest digestion period ever"
Not only are artificial intelligence-optimized servers taking off, but traditional servers are also in the early stages of a rebound. As much attention as AI gets, traditional servers still made up the majority of Dell's server and networking segment last quarter, not to mention the company's storage business.
Dell noted its traditional server portfolio had grown sequentially for five straight quarters, posting three straight quarters of year-over-year growth, as that subsegment slowly comes out of its longest downturn ever.
![https://img.particlenews.com/image.php?url=2Bb6tr_0vK540Ns00](https://img.particlenews.com/image.php?type=thumbnail_580x000&url=2Bb6tr_0vK540Ns00)
Dell sees more AI-powered growth ahead. Image source: Getty Images.
But there could be much more growth in traditional servers. This is for a couple reasons. First, traditional servers underwent their longest downturn ever over the past two years. This is because one, there was a hangover from the torrid pandemic-era growth seen in 2020 and 2021. Then, when things began to recover, AI took off, meaning IT managers had to devote most of their budgets to new AI servers and hold off on refreshing traditional servers.
But that can only last so long. The installed base is now old, and most of all, new server designs take up less space in the data center, making more room for AI machines and the power those AI machines need. Clarke noted:
[I]f I was to look at a 14G, a product we shipped four-plus years ago to a 16G that we ship today, our product today has 2.5 times to 3 times more cores in it. It's 25% to 35% more power-efficient and a single 16G server can replace three to five 14G servers in a rack. Consolidation is going to occur because that space and power is needed.
Like traditional servers, PCs are set to take off too
Finally, while AI and servers are getting the attention, Dell's original PC business is still relevant, making up over half the company's second-quarter revenue and 37% of operating income. Although Dell's computing segment was only flat year over year, it could post impressive growth toward the end of this year and in 2025. Like traditional servers, the PC market crashed post-pandemic, and remained low as budgets were constrained by high interest rates and a focus on AI.
Clarke noted on the call there are several dynamics conspiring for a big PC rebound. One, the pandemic-era PC installed base is old. Two, new AI PCs with neural processing engines are just hitting the market, which should make IT managers want to upgrade soon. Finally, Microsoft will end its support for Windows 10 in October 2025, forcing many IT managers to upgrade.
Clarke noted on PCs:
[A]s the refresh takes longer to start, history suggests it snaps back faster because the Windows 10 end-of-life date is not moving. So we have a Windows 10 end-of-life date. We have an aging installed base of machines bought during the COVID era, all mounting to be refreshed with exciting new products built around AI, and more AI applications are coming.
Dell is a part of the AI portfolio
For those looking to assemble the AI portion of your portfolio, Dell could be a name to add. It has a more reasonable valuation than some of the high-flying semiconductor names, at just 15 times next year's earnings estimates. But with AI servers continuing to be in high demand and traditional servers and PCs due for a rebound, look for this "old tech" standby to potentially beat those 2025 earnings estimates handily.
Billy Duberstein and/or his clients have positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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