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Dell’s stock has risen as much as Nvidia’s, but Dell’s profits haven’t

Dell has been one of the hottest AI stocks of the last year, but is it really benefiting from the AI boom?

5/16/24 2:02PM

Nvidia has been one of the biggest stock market winners over the last year, with the tech industry’s insatiable demand for AI chips sending its stock up 223%. However, another company has quietly gained 223% this year too: Dell.

Yesterday, Dell shares rose more than 11% after Morgan Stanley raised its price target and predicted the company would benefit from more demand for AI servers.

This comes two months after Nvidia CEO Jensen Huang highlighted the role that Dell is playing in the AI world, saying, “Everybody who is building these chatbots and generative AI, when you’re ready to run it, you’re going to need an AI factory. Nobody is better at building end-to-end systems of very large scale for the enterprise than Dell.”

Surprisingly, Dell’s financial performance hasn’t matched its stock returns.

Nvidia's ascension to the $2 trillion club coincided with the company growing its revenue and net income by 200% and 800%, since ChatGPT launched in November 2022.

Dell, on the other hand, has lower revenue than it did a year and a half ago, while its earnings have remained flat over the last three years. And Wall Street analysts don't expect operating performance to meaningfully inflect higher in the short term, either: estimates for where both revenues and profits will be in one year's time, if realized, would still leave results below their post-pandemic highs, per Bloomberg.

In Dell's Q4 earnings call, COO Jeffrey Clarke noted that they were seeing increased demand for their AI servers, noting, "AI-optimized server orders increased by nearly 40% sequentially. We shipped $800 million of AI-optimized servers, and our backlog nearly doubled sequentially, exiting the fiscal year at $2.9 billion."

However, that is still a small fraction of Dell's total $22.3 billion in total quarterly revenue, and it did little to slow an 11% drop in year-over-year sales.

Dell may be one of the winners of the AI boom, but so far, the stock has run far ahead of the business.

Max Knoblauch32m

A former karaoke machine company has obliterated billions of dollars in trucking market cap

Trucking industry stocks are getting gutted on Thursday, with shares of freight companies like C.H. Robinson and Expediators International sinking by double digits.

Fears that AI will disrupt the freight forwarding and brokerage industry appear to be driving the sell-off. A white paper published by Algorhythm Holdings — a company that previously produced consumer karaoke products and also owns 80% of AI logistics company SemiCab — said that its SemiCab AI platform lets customers scale freight volumes by 300% to 400%. Sherwood News was unable to access the paper.

Algorhythm shares are up more than 30%, while major trucking stocks like JB Hunt and Old Dominion Freight are firmly in the red.

The market reaction mirrors last week’s AI-led sell-off in software stocks, and the similar recent sell-off seen in gaming companies following Google’s launch of its Project Genie AI tool.

Luke Kawa1h

Options trades to play for a short squeeze in Hims & Hers as the pain piles up

Hims & Hers has been clobbered over the past week as the telehealth company stepped back from plans to sell a copycat version of Novo Nordisk’s weight-loss pill and then faced a lawsuit from the Danish pharma titan.

In these troubled times for the company, the haters are out in full force.

“HIMS is down -48% over the last month, and yet short interest continues to increase (and accelerate), suggesting hedge funds are pressing their shorts, even though shares are approaching 2Y lows (RSI is just 15),” wrote Dean Curnutt, CEO of Macro Risk Advisors. “With earnings on 2/23, this potentially sets up for a nasty short covering/squeeze event, especially since HIMS usually sees strong post-earnings follow-through.”

Should some be tempted to catch a falling knife in the once loved stock, he offers a pair of risk-defined ways to do so via call spreads.

Curnutt’s recommendations:

Buy calls on Hims with a strike price of $20 that expire on March 20; sell same amount of $30 strike calls with the same expiry.
Buy calls on Hims with a strike price of $22 that expire on March 20; sell same amount of $28 strike calls with the same expiry.

“There is also a lot of upside call skew in Mar expiry, and this allows us to set up call spreads with extremely attractive breakevens and payouts,” Curnutt wrote.

Max Knoblauch2h

Boeing touts supply chain improvements, progress in its “war on defects”

Boeing shares are climbing on Thursday, following comments made by one of the plane maker’s executives at a supplier conference on Wednesday evening.

The company says it’s now spending 40% fewer hours fixing issues arising from its supply chain compared to 2024 — a year marred by production and quality issues.

Defects from parts of the chain controlled by Spirit AeroSystems — a fuselage supplier Boeing acquired last year — have dropped by 60% from 2024.

The progress update comes amid the company’s self-declared “war on defects.” Following its 2024 door plug blowout incident, Boeing has worked to improve documentation, simplify instructions, and expand employee training. According to the National Transportation Safety Board, the share of Boeing employees with 10 or more years of experience halved from 50% to 25% over the past decade.

Boeing sees significant supply chain quality gains

Defects from parts of the chain controlled by Spirit AeroSystems — a fuselage supplier Boeing acquired last year — have dropped by 60% from 2024.

Luke Kawa & Tom Jones4h

Crocs surges as Q4 results and 2026 earnings guidance exceed every analyst’s projections

Shares of Crocs are up double digits in premarket trading after the footwear maker posted Q4 sales and adjusted earnings per share that exceeded every analyst’s estimates.

The company reported revenues of $957.6 million and adjusted EPS of $2.29 in Q4, trouncing expectations for $916.9 million and $1.92, respectively.

Guidance was similarly stellar:

Management called for adjusted EPS to come in between $12.88 and $13.35; the highest estimate from the 13 analysts polled by Bloomberg was just $12.62, and the average was $12.02.

Full-year sales are projected to be down about 1% to up slightly, while Wall Street had also penciled in a bigger decline.

Crocs will struggle to be in s̶p̶o̶r̶t̶ growth mode this year on the top line because it’s carrying around the anchor that is the HeyDude brand.

Even a fresh marketing effort with Sydney Sweeney unveiled in late September didn’t boost HeyDude, in stark contrast to what American Eagle’s partnership with the actress has done to demand for its denim.

The brand’s quarterly sales were down 17% year on year. All of the drop came from wholesale demand, which tumbled 40.5%, while direct-to-consumer sales were flat.

Management expects HeyDude revenues to be down another 7% to 9% this year.

Matt Phillips4h

Cisco slumps as memory price spike weighs on margins

Cisco is falling Thursday, despite delivering a beat-and-raise Q2 result after the previous close. Analysts think surging costs of memory chips are the culprit. Here’s some of what they’re saying.

William Blair: “On the margin front, Cisco guided a contraction in non-GAAP gross margins to 66% in the third quarter (down 150 basis points sequentially), citing elevated memory price inflation and higher mix of hardware.”

Barclays: “While the revenue outlook has improved, and AI orders accelerated, we are not seeing enough translation to EPS growth, particularly given the [gross margin] concerns that recently popped up.”

Citi: “CSCO indicated that memory price increases hit the company with [zero] lead time. That said, the company is working to add more flexibility around their terms & conditions framework in order to pass along memory pricing increases faster.”

Evercore ISI: “Though the guide does imply gross margins will be down ~150bps [quarter over quarter] due to a combination of Mix and Memory inflation, CSCO expects to recover some of these headwinds via price increases and other levers.”