To The Moon

Dell is on fire again, with its stock price surging by 21.25% last Friday, reaching a historic high, and a total annual gain of up to 70%! What happened? Last Thursday after the market closed, Dell released its second-quarter earnings for the 2024 fiscal year (covering the three-month period ending on August 4th), with revenue and net profit significantly surpassing analyst expectations: Among these, second-quarter revenue was $22.9 billion, down 13.2% year-on-year, surpassing analyst expectations of $21 billion: Breaking it down by business segments, the Client Solutions Group (including branded hardware like desktops and laptops, as well as peripherals like monitors and projectors) reported revenue of $12.94 billion in the second quarter, down 16.4% year-over-year; Servers and Networking revenue was $4.27 billion, down 17.9% year-over-year; Storage revenue amounted to $4.19 billion, down 3.2% year-over-year; and Other Businesses reported revenue of $1.5 billion: The decline in revenue for the Client Solutions Group was primarily due to a global decrease in PC demand following the pandemic. However, this business segment saw a sequential growth of 8% in the second quarter, and the management believes that AI will drive a resurgence in PC demand. The decline in revenue for Servers and other businesses was primarily attributed to the sluggish macroeconomic environment, leading to reduced corporate capital expenditure. However, the management indicated that demand from small and medium-sized enterprises has stabilized, while large enterprises are still hesitant. What surprised the market was the significant growth in AI server revenue, accounting for 20% of server orders in the second quarter, with a backlog of orders reaching $2 billion! Benefiting from the stronger-than-expected demand recovery, Dell has provided an optimistic performance guidance, expecting third-quarter revenue to be in the range of $22.5 billion to $23.5 billion, surpassing analysts' expectations of $21.7 billion. From a valuation perspective, Dell currently has a P/E ratio of 12.5x, indicating there is still room for upward potential: While AI can help Dell rejuvenate, the company's profitability is relatively low, with a gross margin of only 23.6% in the second quarter and an adjusted net margin of 3.9%: Before the outbreak of the pandemic, Dell's profitability was even more concerning. In terms of expense ratios, after the pandemic, Dell's sales and administrative expense ratio, as well as research and development expenses, both decreased significantly: At present, it remains uncertain whether the decline in expense ratios can be sustained. At least from the perspective of gross margins, Dell's profitability is relatively low and more susceptible to economic cycles. Long-term holding may not be as reassuring as companies like NVIDIA, which are leading in AI! $Dell Technologies Inc.(DELL)$ $C3.ai, Inc.(AI)$