SOME Dell Technologies investors are questioning whether the stock’s price tag justifies growth that hasn’t materialised yet.

The personal computer maker’s shares soared nearly 90 per cent to a record through the end of November, amid expectations of a boost from artificial intelligence demand. The stock, which is trading above its five-year average at about 10 times forward earnings, has faltered since Dell’s third quarter report showed the AI boost is far off.

“We are waiting to seek a better entry point,” said Hendi Susanto, an analyst at Gabelli Funds. “The stock had run up significantly and we are taking a patient approach when it comes to the AI growth opportunity.”

Dell shares rose slightly at market open Wednesday.

Dell sparked optimism in August when it beat sales expectations in the second quarter and said it saw demand for servers that support AI workloads to be a long-term tailwind. However, last month’s results showed that even though it recorded US$500 million in revenue in the third quarter from those high-powered servers, it wasn’t enough to offset the slump in PCs.

It’s a scenario analysts like Morningstar’s William Kerwin have been warning of. The stock has picked up three-sell equivalent ratings since August. Kerwin, who cut his rating on Dell to sell in September, says shares are overvalued at current levels.

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Barclays analysts led by Tim Long also downgraded shares of the company to a sell-equivalent rating in September, citing macroeconomic pressures leading to difficulty in the PC and server/storage end markets that AI likely wouldn’t be able to offset.

“Growth in this area will require a cycle when people are upgrading because AI enables them to do something new on the device,” said Daniel Newman, chief executive officer of The Futurum Group. “Everyone seems convinced that the bottom of the PC cycle is here, and there are some positives in that, but the real growth won’t come until AI-based PCs and phones come out.”

That may not happen until the latter half of 2024, Newman added. Consensus estimates now expect Dell’s revenue in the fiscal first quarter of 2025 to slip further to about US$21 billion before rebounding to nearly US$23 billion in the second quarter and growing through the end of the year.

Still, Wall Street remains bullish on Dell overall. More than 70 per cent of those covering the company have a buy-equivalent rating, and the average US$79 price target implies more than 13 per cent upside, according to data compiled by Bloomberg.

Its gain of around 70 per cent this year is “a sign that Dell is still seen as relevant,” said Peter Garnry, head of equity strategy at Saxo Bank. “The company is in the same position as Oracle years back with a stable and high margin business but no growth.”

For some investors, Dell’s solid financial position leaves it well placed to withstand a slowdown before potentially benefiting from the next wave of artificial intelligence demand.

“We like companies that have a very sterling balance sheet, don’t borrow very much and aren’t as subject to the vicissitudes of the market and the economy,” said Jack Ablin, chief investment officer of Cresset Capital. “AI could be the next catalyst to drive the next hardware cycle.” BLOOMBERG