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We recently compiled a list of the 16 Most Undervalued Tech Stocks To Buy Now. In this article, we are going to take a look at where Dell Technologies Inc. (NYSE:DELL) stands against the other undervalued tech stocks.

Artificial Intelligence and Data Centers

Artificial intelligence is the hot center of the technology industry, especially with the introduction of Large Language Models (LLMs) like ChatGPT and Gemini. The AI revolution, which is underway, has affected the semiconductor market and we have seen chipmaker stocks skyrocket with it. However, semiconductor stocks are not the only beneficiaries; data centers also benefit greatly from the surge in AI.

According to Future Market Intelligence, the data center market is estimated at around $30.4 billion during 2024, and it is expected to grow at a compound annual growth rate of 14.4% to reach $117.24 billion by 2034. Data centers were in demand before the AI boom as well, with data from Jefferies showing their demand rising 10% to 20% for the last 15 years before AI. However, AI accelerated the market to around 30% in just two years.

The capabilities of data centers and artificial intelligence are revolutionary, but that doesn’t overshadow the energy consumption concerns that come with them. As highlighted by Goldman Sachs Research, data centers consume around 1% to 2% of overall power worldwide, which seems manageable at first. However, they are likely to rise from 3% to 4% in just a decade.

We recently covered 15 Best Data Center Stocks To Buy According to Jefferies, Citi and Wall Street Analysts. It talks about the alarming power consumption challenge that comes with AI and data centers. Here’s an excerpt from the article:

“Naturally, since the US is responsible for ushering in AI, AI energy consumption in America is higher than that in other countries. According to the Boston Consulting Group, by 2030, AI power consumption will account for 16% of all of America’s energy use. It is expected to grow by 15% to 20% annually and touch as much as 130 GW, or the amount of electricity that’s used by 100 million homes. AI chip companies are also aware of these trends, with the latest AI chips promising to improve energy efficiency by 25x. Improving AI performance at the semiconductor level is important especially since some areas where data centers are growing are being forced to turn to coal power to reduce the power gap.”

While the expected power consumption figures are concerning, they also point towards a new market opportunity to introduce “sustainable AI factories”. Tim Rosenfield, co-founder and co-CEO of Sustainable Metal Cloud, has introduced HyperCubes, which reduces energy consumption by up to 50%.

HyperCubes contains servers fitted with Nvidia processors, submerged in synthetic oil called polyalphaolefin. Synthetic oil draws heat from the processors more efficiently than air cooling systems typically used in most data centers.

These cubes are being used in Singapore and Australia. Tim Rosenfield mentioned that the technology enables high-density hosting for GPUs and that too sustainably with low energy consumption. The technology is also said to be 28% cheaper to install as compared to traditional cooling systems and is designed to be used in any data center around the globe.

The co-founder of SMC further mentioned that countries like Singapore are looking to push the “green” button for data centers and AI ambitions, and the country has committed more than $379.7 million to the cause.

Countries like Singapore, where SMC is headquartered, are also looking to mitigate the hefty energy consumption by pushing for “green” data centers to support its AI ambitions where the country has committed more than 500 million Singapore dollars ($379.7 million). The company has also recently received funding from Singapore state investor Temasek-backed ST Telemedia Global Data Centers, one of Asia’s largest data center operators.

Dell Technologies Inc. (NYSE:DELL)

Short % of Shares Outstanding: 1.27%

Number of Hedge Fund Holders: 88

Forward Price to Earnings Ratio as of August 28: 14.49

Dell Technologies Inc. (NYSE:DELL) is a widely known PC brand; it also sells storage, networking, and artificial intelligence servers for data centers. It is an investor’s favorite stock, we say this because it was held by 88 hedge funds in Q2 2024, with stakes worth $2.88 billion. Coatue Management is the top shareholder of the company with a position worth $1 billion.

The company is still mainly dependent on the PC market, which is growing at a sluggish rate, thereby justifying its flat revenue growth rate for the client solutions segment during FQ1 2025. However, Dell Technologies Inc. (NYSE:DELL) is positioning itself to capitalize on a high-growth market, i.e., the AI server market.

The FQ1 2025 of the company was led by a robust 22% growth in its infrastructure group, which includes AI servers. This robust growth overshadowed the sluggish PC segment to grow the company’s revenue by 6% to reach $22 billion.

The AI server market in general is fairly new, and tech companies are looking to capture this market. Its AI server backlog suggests that Dell Technologies Inc. (NYSE:DELL) has already positioned itself to grow with the market. AI server backlog increased more than 31% subsequently to reach $3.8 billion during the quarter.

Management is confident in long-term growth as the major tailwind from increased spending in the IT sector is contributing growth to its business. It expects full-year revenue growth at 8% and adjusted earnings growth at 7% for the fiscal year.

Long-term growth prospects topped with analysts’ expectations of 8.00% earnings growth to reach $7.7 this year making DELL attractive at current levels. It also looks downright cheap with its forward Price to Earnings ratio at only 14%, a 39% discount to its sector.

Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its first quarter 2024 investor letter:

“Dell Technologies Inc. (NYSE:DELL) reported results that exceeded earnings expectations and announced a better than expected AI-optimized server order pipeline. We expect Dell to participate in the growth of artificial intelligence hardware in its server, storage, and personal computing franchises. Long-term, we like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”

Overall DELL ranks 6th on our list of the most undervalued tech stocks to buy now. While we acknowledge the potential of DELL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe.

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Disclosure: None. This article is originally published at Insider Monkey.