Dell’s American Success Story

Last week, Dell Technologies released earnings. The stock reached an all time high of $179 as hardware demand beat all expectations. Let’s discuss the importance of Dell as the tech sectors North Star.

First, if you’re not familiar with Dell, I recommend reading Michael Dell’s two biographies: Direct from Dell and Play Nice but Win.

This man is an American Hero. Born and raised in Texas, he bootstrapped a multi-billion dollar business at an early age. Dell started as PC’s Limited with $1,000 in 1984. In his first year he did $6m in revenue. Last year Dell did $102b in revenue. The American Dream is alive and well.

In 2013, Michael took the company private for $24 billion. Then fought off corporate raiders like Carl Icahn to maintain control. Then took Dell public again in 2018. The company is now worth a cool $95 billion. How many tech companies have been able to pull that off?

It’s Dell’s World, we’re simply living in it

Two weeks ago, Dell announced first quarter earnings and product announcements at Dell Tech World. Most business units were flat or up for the quarter. But Server and Networking Growth is looking into. Driven by AI demand, this segment saw a record 42% YoY growth, reaching $5.5 billion.

With the latest upgrades with Servers and Storage, Dell announced what will now be known as AI Factories. This coincides with partnership news from Nvidia, Broadcom, Intel, AMD and ServiceNow.

“Is there a limit to the demand for intelligence?”

At Dell Tech World, Jensen Huang, the cofounder of Nvidia, explained two big market opportunities for the Dell-Nvidia partnership.

First is that $1 trillion worth of existing data centers will need to be modernized. We need to flip from CPUs to GPUs. The last generation of IT will now need to manufacture intelligence at scale. These new data centers will be known as AI factories.

If you haven’t already, I recommend watching Jensen’s recent interview with Patrick Collison at Stripe Session. He goes into great detail about this trillion dollar opportunity.

The PC hardware

Now is Dell the best bet on A.I. hardware? No, I don’t think so. In fact, when the cycle peaks, Dell will be the first company to feel the pain. This stock is operating with very tight margins (<5%). When sales slow down, Dell will be the first company to signal a market shift.

However, Dell is a leading indicator for investors. Hardware server sales will tell us which way the market is heading. For example, Tesla is currently at capacity with GPU servers so order demand has shifted to xAI, a competitor to OpenAI.

At a certain point the cycle will peak and hardware margins will be commoditized. But I don’t think we are there yet. It might take another 12-18 months. The main driver in the near term will be the rush of new money building these new A.I. factories.

More updates on technology

Below are three recent articles I wrote about tech investing. Click the links to learn more.

• ​Cisco’s New $1b A.I. Fund​
• ​How to Value Software Stocks​
• ​The problem with ETF managers​

Also, if you’re looking for more investment updates, check out Golden Door’s Ideas section.

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