Dell is now the most important stock in the market. Here’s why
Tech
Dell is the stock to watch in Wednesday’s market. The AI trade depends on it. Shares of Dell shot up more than 13% shortly after the open after the server maker on Tuesday night delivered what may be the best earnings report of the year. The stock then gave up much of those gains, up around 5% in late morning trading. While the numbers and conference call commentary made clear that the artificial intelligence buildout is still in full effect, the price action in Dell will tell us whether Wall Street cares and where the AI trade goes from here. Early indications are validating our recent moves to lighten up on AI exposure on concern that even good news has not been enough to sustain rallies. We saw the same thing play out last week, when Nvidia jumped almost 9% on blowout quarterly results and an even better long-term outlook, only to give back most of the advance in subsequent sessions. The recent turbulence in the AI trade is the reason we have been raising cash for the Club. Tuesday’s exit of Corning to protect solid gains brought our cash position to around 15%. If we were to put some of that dry powder to work, it would likely be in more defensive, non-AI corners of the market. Three months ago, Dell stock skyrocketed almost 33% in a single session after delivering an incredible quarter, with a massive, 39% increase to its fiscal 2027 adjusted earnings per share guidance. Back then, we argued that the move was justified because Wall Street analysts ended up hiking their future EPS projections to reflect the new guidance by almost as much as the stock gain. That meant despite a large headline increase to the stock’s price, its underlying valuation barely budged. Notably, the stock held onto those post-earnings gains over the past three months, indicating the surge was, in fact, justified. This time around, Dell increased its fiscal 2027 earnings guidance by an even greater amount — roughly 42.5%, to $25.50 from $17.90 — and the Street’s consensus earnings estimates for fiscal 2027 went up by almost 29% overnight. And yet, we’re only seeing a 5% gain for the stock. The gap between earnings revisions and the stock’s percentage increase Wednesday is wide, suggesting shares got cheaper when valued against full-year fiscal 2027 numbers. If we were in the May market, you might easily argue that Dell shares should have much more room to run to close that gap, maybe even this week alone, before you start to digest the update and the stock starts to consolidate. But we’re not in the May market; we’re in the September market. And in the September market, data centers and AI are a point of contention ahead of the midterms. Elections mean uncertainty. On Wall Street, uncertainty means investors demand a greater margin of safety, which translates into a lower price-to-earnings multiple. History is also working against the market as September is traditionally the weakest month of the year for stocks. This is why trading of Dell stock Wednesday will so heavily influence attitudes on the AI trade, at least in the near term. Will they advance to a level that puts valuations on par with where we thought they were Tuesday? Will they hold at current levels, indicating that investors are still interested enough in the trade to hold on, but do indeed require that margin of safety? Or will they sell off, indicating that as strong as the numbers were, the buy-side community was either already expecting it, or simply feels that to be bullish on the AI trade at the moment is to be picking up pennies in front of a bulldozer? When we exited Corning on Tuesday morning, we wrote: “It’s always a possibility that Dell ‘s earnings after the bell and Broadcom on Wednesday evening improve sentiment in the group. Should that happen, this Corning sale will look wrong, but the portfolio will benefit across several positions. If the market continues to ignore positive results, this Corning sale, like many of our AI sales over the past few months, will help shield the portfolio from giving back more of its gains. We don’t have a crystal ball, but at this juncture our preference is to lean defensive.” To call Dell’s results and revised guidance simply “positive” would be the understatement of the year. Indeed, Jim Cramer said Wednesday on CNBC that the Dell quarter was “extraordinary,” saying the current numbers were stronger than he thought the company would deliver a couple of years from now. Dell’s results also backed up the big takeaway from Nvidia’s earnings that companies involved in AI are making money now, Jim added. The market isn’t ignoring all this goodness at the moment, given Dell’s rally is still respectable. But whether that remains the case throughout the day and in the coming days matters a great deal. That will help us better understand the market’s current sentiment on AI infrastructure players, and what they are worth in a world in which AI and the infrastructure being built to power it have become political footballs. (Jim Cramer’s Charitable Trust is long NVDA. See here for a full list of the stocks in the Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Dell is now the most important stock in the market. Here’s why
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