President Donald Trump Is Buying Dell. Should You?

President Donald Trump has been more involved in the stock market than past presidents.

He's made some timely calls, notably telling investors to buy stocks after the market meltdown in April when he announced high tariff rates on most of the country's major trading partners.

The Trump administration has also had the U.S. government take stakes in companies it deems imperative to national security. Some of the government's picks, like Intel, have turned into extraordinary investments.

Recently, Trump has been touting and buying Dell (NYSE: DELL) stock. Should you?

Image source: Joyce N. Bhoghosian.

Why does Trump like Dell?

Michael and Susan Dell donated $6 billion to power the new Trump Accounts, which are tax-advantaged accounts that parents can use to start building savings for their children as soon as they are born.

Eligible newborn babies born between the start of 2025 and the end of 2028 can also receive a free $1,000 contribution to the accounts.

"Go out and buy a Dell computer," Trump, who made a similar pitch in May, said on July 6. "We're going to get him that money back one way or the other -- and then I'll ask for another $6 billion. ... We'll start the whole process all over again."

Although the U.S. government doesn't hold a stake in Dell, 2025 financial disclosures show that Trump made 24 trades in Dell last year, with $545,000 in net purchases.

Dell has benefited from the AI trade

Trump's bullish calls may help Dell, but the company has already benefited immensely from its involvement in the artificial intelligence trade, with the stock up more than 230% this year.

Similar to other AI plays that have done well, Dell is a pick-and-shovel play. The company builds servers that house graphics processing units (GPUs). Dell's servers help the GPUs run properly by cooling them, managing power distribution, and connecting them to other GPUs and storage within data centers.

So, as GPU clusters scale, Dell sees more demand for its servers. In Dell's first fiscal quarter of 2027, which ended May 1, revenue surged by 88% year over year, while diluted earnings per share surged 282%. More than 37% of Dell's total first-quarter revenue came from AI servers alone.

After the earnings report, Piper Sandler analyst James Fish raised his price target on Dell to $497, implying about 19% upside from the July 7 closing price of about $417.

"This was not just a one-quarter phenomenon either, as the team is seeing backlog and pipelines outpace sales growth, though admitting that some of this is due to net pull-in of demand given the ongoing supply chain issues across the space and raised pricing," Fish wrote in his research note at the time.

One issue with Dell is that it's not exactly a high-margin story. Even as revenue has surged, the company's gross margin has declined by more than 300 basis points from 21.1% a year ago to 17.8% in its first quarter.

Should you buy the stock?

The company's valuation reflects some of the margin issues. Dell trades at about 21 times forward earnings and 1.6 times forward sales, which isn't low per se, but not nearly as high as some other high-flying AI stocks.

Dell also has a large personal computer business, which, while no longer the company's main focus, remains a segment that management hopes to rejuvenate. The company wants to offer products with greater variety in price points and features.

While I am wary of all companies whose stocks have ripped higher on the AI trade right now, Dell by no means trades at an outlandish valuation compared to others. However, if you do buy the stock, I would dollar-cost average to smooth out your cost basis over time, as AI names are likely to experience high volatility.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.