AI business sees revenue growth but no profit increase! Is Dell's stock price drop an opportunity? (2024.06.04)

Hello everyone, in this week's [Technical Tracking], we will analyze Dell Technologies, a leading global personal computer (PC) manufacturer and a hot stock in artificial intelligence (AI) investments.$Dell Technologies(DELL.US)$。

Hot Topic

On May 31, 2024, Dell's stock price closed with a nearly 18% plunge, marking the company's largest single-day drop since its relisting in 2018. Over the past 12 months, due to investors' fervent pursuit of AI, the stock price of this AI server provider surged more than two-fold!

Dell's stock price was hit hard because investors' expectations were set too high, but the company's first-quarter report did not meet expectations in the crucial area of AI that investors were most focused on.

Data shows that Dell's revenue for the first quarter (ending May 3) grew 6.3% year-over-year to $22.2 billion, surpassing analysts' expectations of $21.6 billion. However, adjusted operating profit declined by 8% year-over-year to $1.5 billion. This raises a concern: the decline in operating margin suggests that Dell's AI server business is 'revenue-generating but not profit-boosting,' failing to substantially contribute to the company's profitability, which casts doubt on its AI prospects.

Additionally, Dell raised its revenue guidance for the fiscal year (ending February 2025) to $93.5-97.5 billion, representing an 8% year-over-year growth at the midpoint. However, Bloomberg Analyst Woo Jin Ho pointed out that this guidance suggests that Dell's AI server sales may not see significant changes for the remainder of the fiscal year, raising questions about its short-term competitiveness.

Despite the heavy sell-off, some analysts remain bullish on Dell's stock. Bank of America analysts view Dell's latest Earnings Reports as strong, maintaining a 'Buy' rating on the stock. They attribute the significant drop in Dell's stock price to the $3.8 billion backlog of AI server orders falling short of expectations, as well as the anticipated decline in growth rates for the current fiscal year.

JPMorgan analysts also maintained their 'Shareholding' rating on the stock, believing the market reaction was overdone and suggesting that the significant volatility in Dell Technologies' share price may present a potential buying opportunity for investors.

Technical Analysis

Trend Analysis:

Since March 2023, Dell Technologies' share price has shown a strong upward trend, surging from $35 to a high of $179, an increase of more than four times! During this period, there were two notable jumps, both occurring on Earnings Reports days: a 21% surge on September 1, 2023, and a 32% surge on March 1, 2024.

However, following the most recent Earnings Reports, Dell Technologies' share price fell by more than 20% over two days, indicating that the stock has entered a technical bear market.

Indicators Interpretation:

• Over the past six months, Dell Technologies' share price has remained above the 50-day moving average (MA50). However, after the sharp decline, the potential support of the 50-day moving average is now being tested by the bears.

• As the share price retreated from its peak, Volume surged, with the Turnover Ratio reaching as high as 25% in a single day, indicating a state of panic in the market. The possibility of significant short-term price volatility is high.

• Before the stock price reached a new high, an ascending triangle pattern appeared on the daily chart. The horizontal trendline of the triangle is located around $135, and it is expected to play a significant role as a support or resistance level.

• Currently, both the RSI and KDJ Indicators have fallen below the 50 threshold, indicating that the market may be turning towards a bearish sentiment in the short term.

Focus Areas:

The 'Position Cost Distribution' data shows that, as of June 4, 2024, the average holding cost for investors was $137.80, slightly above the current closing price of $135.76. The proportion of profitable positions is 51.72%, slightly above 50%. This indicates that, in recent times, the bulls and bears have been roughly evenly matched, leading to a high degree of uncertainty in the market trend.

Investors can pay attention to the potential support at the 50-day moving average, as well as the contest between bulls and bears at the horizontal trendline (around $135).

This content discusses technical analysis, and other methods, including Fundamental Analysis, may provide different perspectives. The examples provided are for illustrative purposes only and do not reflect expected outcomes.

All investments involve risk, including the potential loss of principal, and there is no guarantee that any investment strategy will be successful.