Dell Stock Is Impossible to Ignore Right Now. Here's What to Do With It.

A year ago, it wasn't even part of the discussion. Today, this company has taken center stage, creating just as much noise as artificial intelligence industry powerhouses like Nvidia and Alphabet.

That company? Dell Technologies (NYSE: DELL). Its stock is now up more than 260% over the past 12 months, with most of that gain coming since February, when the market finally recognized how much of an artificial-intelligence name the company has become. Indeed, Dell shares recently soared nearly 30% the day after reporting first-quarter revenue growth of 88%, confirming it's a serious AI contender.

Image source: Getty Images.

And there's the rub for interested investors. Dell may be penetrating a crowded artificial intelligence arena. Its stock, however, has raced to levels that are tempting profit-takers.

But, there's a but.

Dell's incredible quarterly growth

Yes, this is the same Dell that's been making personal computers since 1984. While the PC business has faded thanks to the proliferation of smartphones and tablets, the company still serves the always-solid corporate market.

Ever since the mid-2024 debut of the Dell AI Factory, though, its artificial intelligence business has been picking up steam, culminating in an explosion for the quarter ending in early May. That's when sales of its servers and networking solutions nearly doubled, and when sales of its AI-optimized servers soared 757% year over year to $16.1 billion, making it the company's single-biggest business.

Investors saw something like it coming. While the stock soared in response to the quarterly report, again, it was already well up before then, rallying more than 180% over the course of the year leading up to Thursday's release of these numbers.

As veteran investors can attest, however, this is the sort of rally that tends not to last, usually giving way to profit-taking. That's likely to be the case this time around, too.

Just don't expect a catastrophic near-term setback to use as a long-term entry point.

Not now, but soon enough

There's no denying Dell stock is technically overbought and ripe for a profit-taking-driven pullback. From a fundamental perspective, though, there's still a surprising amount of value at and around the stock's current price.

That assessment is based on the simplest of fundamental measures: projected per-share profits for the current fiscal year. Dell's guidance suggests it's on pace to report a full-year non-GAAP profit of $17.90 per share, largely driven by the 144% revenue growth it expects from its AI-optimized servers. Assuming its own forecasts for its own business are on target -- and there's no reason to think they're not -- Dell shares are presently priced at a very reasonable 23 times their forward-looking earnings.

Some would even say they're undervalued, in fact, given the company's current growth rate. Analysts think so anyway. Most of the ones covering this stock consider Dell a buy right now, with a consensus price target of $440.11, about 8% above the stock's current price.

What should investors do from here? It's probably best to let the current froth burn off as much as possible. That probably means a pullback of some degree is in the offing.

Just don't be afraid to step in sooner than you feel comfortable doing so. The valuation-based argument at Dell's current price is still pretty strong.

James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.