AI Stock JUST **CRUSHED** | Major AI BOOMER!

Del just smashed earnings, suggesting the AI overbuild is nowhere close to [music] finishing, which has been consistent with the thesis given that we really believe that the money coming from SpaceX and other companies is going to keep going into this vortex, whether it's the anthropic IPO or money raising, debt financing, whatever, it's all just going to kind of keep cycling into these AI hardware companies. Dell is the recipient of some of that sucking. They suck money out of the financial system to invest in capital expenditures. Dell picks some of that up. Nvidia picks some of that up. The hardware 2.0 cycle which has been struggling with a lack of liquidity and fear over JPO and well Kevin Worsh and rates that sucking is sending money to the hardware plays and eventually should drive a hardware 2.0 rally. Although we were delayed a little bit because again those the you know rate concerns and worsh. So what did we just get out of Dell and what's so interesting about it? Dell just reported uh revenues uh that beat expectations across the board. We got Q3 revenue guide up 16.9%. Which is really good. The AI optimized server forecast uh came in 23% higher than expected at 74 billion versus 60. And this was really the showstopper. Their fiscal year earnings per share forecast came in 42% higher than expected, which is insane. Instead of $17.9 per share uh on uh 17.8 17.9 in that rough midpoint range for adjusted EPS next year or for the uh yeah, for the fiscal year uh ending January 2027. Their fiscal year is a little funky. Uh instead of 17.8 to 17.9, they're expecting to have adjusted EPS of $25.50. 2550. Come on, man. This is a massive beat of 42% on their forecast buy online. Now, that is adjusted EPS. So, there could be some funky math going on there. So, what I wanted to do was go deep in uh dig deep into their margins because I've always thought of Dell as a relatively low margin infrastructure play. And you all kind of have my mindset on where infrastructure plays it. You've you've seen this before. We've got this little paper we keep right here. Uh and we believe that over time infrastructure commoditizes, tokens commoditize, and the value enhancers win. I like investing where the value enhancers are, but I'm not saying I think there's the end to the infrastructure cycle yet because there's so much money going from the big money raises and the sucking into infrastructure. So, I actually think there's still another cycle here just delayed again by Warsh and all the other nonsense. Um, by the way, in case you're wondering what this is, if you want the Meet Kevin app, you can get that for free. Keep in mind, you can get that on desktop as well. Just make sure you download the mobile Android or Apple app first. Sign up, use your course member email if you're a course member, otherwise just create an account if you're not. Uh, and it's free to use the app. And then you can use app.mmeke.com, which is kind of cool because then you can kind of get the wire services up. And uh uh for example, one of the things that I did is I typed in Dell into the search function right here. And then I could see some of the Dell commentary coming straight out of the earnings call without having to actually listen to the earnings call. This is just a quick trick if you want to do that. I still personally like going to the earnings calls, but it saves a lot of time and I like things that save time. But talking about margins, so I've always thought of Dell as a historically low margin business. And since 2020, they really have been. Go back to 2020, you see, they lost money. Uh, okay fine. It was COVID. 2021 2.3% margins. 2022 23 24 25 basically between 4.2 to 4.8% margins. Low. But look at the expectations of what's happening to their margins. 2026 5.7 2027 7.1 terminating at about 8.2 in 2031 based on current analyst expectations. this jump between 25 and 26 uh and then this jump up to January of 2027. All these dates, by the way, end in January, which is again their sort of weird fiscal calendar, but whatever. 5.7 from 4.8 represents an 18.9% 18.8% growth. And if I go 17.1 divided by 5.7, that represents a 24 12% growth rate. So these net income margins are popping off and that's one of the reasons there's so much enthusiasm on the earnings report coming from Dell because we're finding that a relatively low margin provider is actually contributing uh substantial bottomline boosts uh for Dell. So, if I jump on over to their infrastructure group, which is where you're going to see the artificial intelligence servers, you'll find here that AI optimized servers saw a doubling from last year. Now, interestingly, that growth was only 1.67% from the last quarter. See, I pulled up their last earnings report, and AI optimized servers ending May 1st sat at 16.1 billion. And in this quarter, they sat at 16.4 billion. So, you're kind of starting to run into some of those large number concerns, but the EPS growth is what's making people really excited about the stock. I personally flag this as a little bit of a red flag. And I want to be clear, I do not have an exposure long or short to Dell. Just sharing, you know, my sort of reaction to this. Uh I did see that in this quarter traditional servers and storage grew more at 122% and 26% whereas in the last quarter they were growing at 92% and 8%. So both of those segments actually grew nicely leading to an 89% increase in that infrastructure group revenue. Uh last quarter higher growth rate because of that growth uh you know that like 700% growth rate in AI optimized servers. So a little bit of a slowdown quarterto quartarter uh here in AI optimized servers you are running into the law of large numbers but what's fascinating isn't the law of num large numbers problem what's fascinating is their pricing power their uh percentage of operating income as a percentage of net income so after costs is now 15% for the infrastructure solutions group it used to be 8.8% 8%. So they had to go sell a server to somebody and they'd bring bring 8.8% to operating income. Now they're bringing nearly twice that to operating income. Okay, I might be generous with twice. They are bringing 70% more. That's really good. So that margin pop is fascinating. People love that. that margin pop could be justifying this boost we're seeing in Dell's uh forecast for adjusted EPS. But I didn't just want to look at the infrastructure solutions group. So I wanted to see if their pricing power is growing elsewhere. If I look at their margin growth on products, the answer is yes. We are generating more revenues than our products are costing us. That's an increase in pricing power. Plus, when we compare total revenue growing at 58% or even just products growing at 72%. And then we look at gross margin growth of 80%. We can see that 80% their gross margin is greater than what their revenue growth is, which means they're taking more pricing. You can also look at it in the inverse by looking at their costs which are growing slower than their actual uh revenues are growing. Uh which is great. both both products services were actually negative over here. They spent less money on services. So you've got this expanding gross margin. Those are all signs of pricing power. Is it possible this is all a temporary bubble? Of course. Of course. Like you know, like I said, I think we got one more good euphoric rally and then I think Anthropic ruins everyone's day. Not right when they IPO, but when they report their first and second and third quarter earnings as they're public and people start going, "Ah, really? That's not that good." You know, the more that starts happening, that's when, you know, some of the spending slows down a little bit and the hardware hype kind of dies. I still think there's a hype cycle between now and them. But Dell is actually really unique because Dell doesn't actually sell to the hyperscalers. Dell focuses their sales on the sovereigns, the Neoclouds, uh, and then also uh, the the enterprise businesses. I'm a really really big fan of enterprises using artificial intelligence. I I I don't want to sound like a broken record. talk about it in almost every single freaking video, but we just look at what we can do with artificial intelligence and provide those services, whether it's our homes AI product or uh you know, our stock terminal product uh or just what we're building. It's so incredible with artificial intelligence. We're really excited about it. The reason I bring that up is is not to shield anything. It's it's simply to say we've blown more money on hardware than I think I ever have at any point in my career. Right? And because like the money we're spending on hardware is generating money. And that's literally what Dell said at their top line. If you look at Dell's top line, they say, and it's totally true, it environments have shifted from cost centers to value drivers that fuel growth and competitive advantages, and customers are investing accordingly, creating opportunities across the Dell portfolio. Yeah. Yeah. I totally totally agree. You know, you could see some of our products like if you go to the meet reinvest uh page uh extended through Friday, you have one more shot here to get in for that lifetime access because Teachable had a payment glitch when our coupon expired last Friday. You can get lifetime access to the Reinvest Homes AI product. Uh and then you could also, of course, get lifetime access to the Meet Kevin membership, online courses, every trade alert, every private live stream, every alpha report. Just use that coupon code J-Hold before the end of the day on Friday. Tax professionals say it could be a tax writeoff. Now, let's think about what that means for Dell. What that means is across the board, you have customers going to Dell saying, "Hey, we don't really care what it costs." I mean, there's obviously some limit, but enterprise businesses, that's a little redundant, businesses are going to Adele and they're saying, "We want AI servers in our business. Help us set them up. We don't want to go buy the graphics card ourselves. We don't want to hire the engineers to build the software to run it. you give us the software, you give us the hardware, plug it in, and tell me I have an AI data server. Dell will do that for you. And that's what's kind of cool. Now, the CEO says they have spotty CPU shortages uh and shortages with disk drives as well. Uh keep in mind, this is on the stock tab for course members in the alpha membership. They expect that 75% of all data center demand will be artificial intelligence by 2030. I don't actually see that as an issue mostly because I think we're just kind of transitioning away from a normal server to a server that can basically do AI and non AI tasks. It's just sort of like the next generation server, right? Uh they say here the second half they think will be even stronger than the first half. I think that's a little bit of explaining for that slowdown in the quarter overquarter growth rate. I think that quarter over-arter growth rate like not year-over-year but comparing to last quarter was a little weird. like really it only grew to about 1%. Okay, whatever. Uh like really one of the few red flags I found. Uh big refresh opportunity they say for older 14th generation servers and before that. Uh and then uh you know the fiscal year forecast for earnings were 42% too low. And that actually helps us look at evaluation. And this is the hardest thing about fundamental analysis is you kind of have to compare your expectations for growth to what analysts are projecting. And analysts can be wrong to the upside, they could be wrong to the downside. It's obviously the problem with that. So if we look at where this company sits right now based on analyst expectations, it's sitting at a growth rate of about 16.3 with a price to earnings ratio of about uh let's see if we take 1910 for the end of the year. Now revised numbers that puts us at about uh 24 times. So right now we're trading for somewhere around divided by 16.3 actually trading for only about 1.49. 49 on a PEG ratio. That's after these last earning sets uh come in. So this number really drove some meaningful change to that that Dell bottom line. Uh so I'm going to modify this uh in terms of the EPS that's currently projected. We've got 19 or I'm just going to write this down. We've got 19 10 uh and then the growth rate analysts expect 16%. But remember, if the forecast is that we're actually going to be about 42% higher on earnings, then we might actually be growing closer to 23%. If we adjust that in, the peg for this company all of a sudden looks a lot more inexpensive and it looks like the company has more potential upside. Because if I now come in here and say, "All right, we're going to say growth is 23%. We're going to give it a 1.4 peg at uh the EPS for the for January. We could potentially get to a price target range between 527 to 615." Now, there's something really important about that. That target range assumes that we could keep beating estimates that all estimates between now and 2030 should get jacked up by about 42%. That might be too aggressive. Unfortunately, if you discount away that 42%, the stock shouldn't really go anywhere, right? You kind of suggest with these latest earnings, it's actually his earnings were really good. they're making a whole lot more money, but now the stock has already priced that in. The last time we looked at Dell, we're like, "Ah, they're a little pricey." You know, the markets are expecting bigger growth and we got that. So, last time we're like, man, you know, these earnings, these estimates, they're they're really low. All of a sudden, we get these crazy earnings. It's like stock blows up, you know, 6% or whatever. Blows people's expectations out of the water. That's great. Stocks up now 7%. You're sitting at about 455. If we look at this on a technical basis, we could see we're pretty dang close to the top over here. Uh let's go down. We'll take the 2025 uh in this case, we'll take the 2025 bottom and we'll just do a quick technical look at it. If I take 514 and 6473 here. Okay, lock that into place. Look at where we're sitting. We're literally jumping off of that 417 line that we've consistently been rubber banding around. So, a durable place to bounce on. More preferable to buy it around these levels. It's possible because the market is a little tenuous between now and Fed day. maybe you'll be able to get a discount for this again. But the flip side is you really have to expect those big growth rates to justify the forward valuation on this. So maybe you do maybe you think enterprise AI is going to last a whole lot longer, boom, a whole lot more than the hyperscaler uh AI demand. I don't disagree with that argument. Uh I think there's a risk that if hyperscaler demand goes away, all stocks kind of fall in the hardware space. But enterprise might be a whole lot more durable. Uh, so I like the enterprise spending, but I will make a note here that a five, what do we say? Five, this is on the low end for margins. 1.2 peg versus 1.4 peg puts us out 527 to 615. 517 to 615 uh terminal price target uh requires uh about 23% average EPS growth. That might be frothy. Uh enterprise might rush to AI the next few years but will terminal growth rates hold up right uh rates hold up because if the terminal growth rate for this ends up at 10%. You know then then we get to really pricey again at these lower 8% margins. So bottom line, growth really beat expectations here. Yes, some nervousness in markets now, but the spend is still going on like crazy. That's good for now and uh honestly good for Dell. [music] They are making way more money on a low margin product than uh than markets expected. [music] Uh and it's very impressive. I hope they keep it going. All right, that's Dell. Why not advertise these things that you told us here? I feel like nobody else knows about this. >> We'll we'll try a little advertising and see how it goes. >> Congratulations, man. You have done so much. People love you. People look up to you. >> Kevin Praath there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.