On Monday, Dell Technologies saw a significant rise in its stock following a remark from President Donald Trump urging Americans to invest in the company. Trump also mentioned that founder Michael Dell's $6.25 billion contribution to Trump Accounts would eventually be returned, further fueling investor enthusiasm.
The President made these comments while endorsing his new savings initiative called Trump Accounts. The stock rally, which has been a recurring theme in Trump's endorsements this year, saw Dell's shares climb up to 10%, reaching an intraday high of approximately $429.35 and adding over $15.8 billion to its market capitalization.
A Familiar Pattern of Endorsements
Investors have seen this pattern unfold before. Back in February, Trump advised a crowd in Georgia to buy Dell, and he repeated this sentiment at a White House event in May, which sent shares soaring to record heights. “Go out and buy a Dell. We’ll get them that money back one way or another. I also want to thank Micron,” Trump stated during the opening bell on Wall Street, announcing the launch of Trump Accounts.
Timing Under Scrutiny
The timing of Trump's endorsement has spurred criticism. His account reportedly purchased between $1 million to $5 million worth of Dell stock on February 10, a mere nine days prior to his public endorsement, raising concerns about ethical conflicts. The stock has more than tripled since early February, joining a list of other publicly supported stocks that have benefited from Trump’s influence.
Driving Forces Behind the Rally
However, the surge in Dell's stock is not solely attributed to political endorsement. For its most recent quarter, Dell reported a staggering $16.1 billion in AI server revenue, marking an impressive 757% increase compared to the previous year. The company has since revised its annual AI server revenue target to around $60 billion, bolstered by an order backlog exceeding $50 billion. Moreover, the Pentagon awarded Dell a lucrative $9.7 billion IT contract spanning five years.
Concerns on the Horizon
Despite the strong performance, some analysts warn that the stock movement may be detached from the fundamentals. Matthew Niknam of Truist maintained a hold rating on Dell’s stock, even raising his price target to $360 while noting that it trades well above its long-term average of around nine times earnings. Additionally, Dell’s gross margin has decreased from approximately 21% to below 18% within a year, due to reliance on expensive Nvidia chips and a tight memory market.
The stock's volatility is also evident, as it witnessed a nearly 8% drop on July 2. Additionally, emerging AI bubble warnings from investor Michael Burry may unsettle the currently optimistic sentiment. Ultimately, whether Dell’s AI demand can sustain these new heights may hinge on the performance indicated in the company’s next earnings report.
