Dell Earnings Call Leads to 18% Drop: What's the Impact?

Dell Technologies(DELL), a powerhouse in the tech industry, recently faced a significant downturn following its latest earnings call. The announcement led to an 18% plunge in Dell's stock price, raising concerns and questions among investors and market analysts. This article delves into the reasons behind the drop, its immediate impact, and the broader implications for Dell and the technology sector.

What Happened to Dell Stock?

After the US stock market closed on Thursday, May 30, Dell Technologies, a leading PC and server manufacturer with a 40-year history, released its financial report for the first quarter of the 2025 fiscal year. Before the earnings report, several mainstream Wall Street investment banks had raised their target prices.

Despite Dell's total revenue and segmented business revenue exceeding expectations and a 30% quarter-on-quarter increase in AI server order backlog, reaching $3.8 billion, the results did not meet investors' high expectations for AI. Additionally, adjusted EPS profits declined, leading to a nearly 18% drop in the stock price after hours.

Analysts also noted that Dell did not provide performance guidance for the next quarter in the earnings statement, contributing to the sharp stock price decline. However, Dell indicated that it would offer guidance during the earnings call.

Dell closed down 5.18% on Thursday, ending a ten-month cycle of six consecutive gains. Prior to this, it had reached record highs for four consecutive trading days. Since the beginning of the year, Dell's stock price has more than doubled, increasing by over 120%, significantly outpacing the S&P 500's 11% gain during the same period.

Analysts attribute Dell's growth prospects to the AI boom, suggesting that continued improvements will support the stock price at new highs. Dell's valuation is lower than other popular AI technology stocks, and market speculation about its potential inclusion in the S&P 500 index is also expected to boost its stock price.

Currently, Dell's price-earnings ratio is 22 times the expected earnings. Compared to the Nasdaq 100 Index and other AI companies such as Nvidia, Advanced Micro Devices (AMD), and Microsoft, Dell's valuation is discounted but still 5.8 times higher than its five-year average, marking its highest level.

Deepwater Asset Management describes Dell as "both a growth stock and a value stock." Despite its low price-earnings ratio compared to other AI companies, the growth potential of its PC and server business is still underestimated.

How the Stock Drops Influence Others?

Dell and Nvidia(NVDA) maintain a collaborative relationship in the technology and computing sectors, primarily focused on integrating Nvidia's advanced graphics processing units (GPUs) and other technologies into Dell's computing solutions. However, a decline in Dell's stock could potentially impact Nvidia's stock as well.

From May 26, 2024, to May 31, 2024, Nvidia Corp's stock price showed significant fluctuations, with prices ranging notably during the trading sessions. The stock reached a high of $312.45 and dipped to a low of $289.10 within this period, reflecting a volatile market environment. The trading volume was consistently high, indicating active investor interest and participation. These movements suggest that Nvidia was under keen observation by the market, possibly due to recent developments in the company or its sector.

Should I buy Dell Stock?

In the short term, Dell's stock lies in the middle of a very wide and strong rising trend. It is expected to rise by 31.82% over the next three months, with a 90% probability of holding a price between $175.34 and $237.17 at the end of this period. Additionally, Dell holds buy signals from both short and long-term Moving Averages, indicating a positive forecast. There is also a general buy signal from the relationship between the two averages, where the short-term average is above the long-term average.

Given the current analysis and market conditions, Dell Technologies stock shows potential for short-term gains, supported by positive technical indicators and strong performance in AI-related segments. However, the high valuation and mixed analyst opinions suggest that investors should approach with caution and consider their risk tolerance and investment horizon.