Dell Technologies (NYSE:DELL) stock is a must-own as sales of personal computers rebound and we enter the new age of computers driven by artificial intelligence.
DELL stock has enjoyed a huge run, having nearly tripled its share price in the last 12 months. At the end of the first quarter, Dell’s stock is up 49% on the year.
More gains are likely as the company, run by founder Michael Dell, continues to benefit from the twin catalysts of rising PC sales and the era of the AI-driven computer.
Shareholders of DELL stock also benefit from the company’s generous dividend and stock buyback programs.
PC Market Recovery
Sales of personal computers soared at the outset of the pandemic as people switched to remote work and school.
However, sales declined sharply in 2022 and 2023 as we emerged from the Covid-19 crisis. In fact, 2023 was the worst year ever for PC sales, registering a 14.8% year-over-year decline, according to data from market research firm Gartner.
The industry suffered through eight consecutive quarters of sales declines.
But now, sales are recovering and rising again. According to Gartner, worldwide PC shipments rose 0.3% in the fourth quarter of 2023 as the industry rebounds from its lows.
In a news release, Gartner declared that “The PC market has hit the bottom of its decline after significant adjustment.”
The recovery is great news for Dell Technologies, which is the third largest PC maker in the world, commanding a 17% share of the global market.
Last fall, when announcing its third quarter financial results, Dell sounded an optimistic note on corporate PC demand, saying they expect a strong rebound in sales throughout 2024.
Market research firm Canalys is forecasting that full-year 2024 PC shipments will grow 8% year-over-year and reach 267 million units, supported by tail winds that include a Windows refresh cycle and the emergence of AI-based computers.
AI Computing
While Dell is in the early innings of the global PC sales recovery, the company is benefiting from huge demand for another part of its business, its artificial intelligence servers.
The company announced in its latest earnings that its net income swelled 89% from the previous quarter to $1.16 billion, driven almost entirely by its AI server unit.
Dell said its backlog of AI servers has reached $2.9 billion compared with $800 million two quarters ago.
Dell’s management team reported shipping $1.5 billion of AI servers in the last two quarters and noted strong interest in AI servers.
Beyond the AI servers, Dell is also launching AI-powered personal computers.
The company has said that it plans to launch new AI-powered PCs in the second half of this year, and expects the devices to drive a large refresh in its devices and function as a sales catalyst over many quarters.
Dell’s chief operating officer Jeff Clarke said that by the end of 2025, one out of every five PCs sold is likely to be AI enabled, and that total is likely to double by the end of 2026.
The company’s strong earnings print and role in AI has led to multiple analyst upgrades of DELL stock in recent weeks. Wells Fargo (NYSE:WFC) maintained a buy equivalent rating on Dell and raised its price target on the shares to $140 from $85, implying 26% upside from current levels.
Dividends and Stock Buybacks
In delivering its latest financial results, Dell announced that it was raising its quarterly dividend by 20%, taking the payment to 44.5 cents per share, payable to stockholders of record as of April 23.
DELL stock now has a dividend yield of 1.60%. The dividend increase that accompanied the Q4 2023 print was the latest example of the ways in which Dell is generous with its shareholders.
Last fall during an analyst day, Dell pledged to increase its dividend payment to stockholders by at least 10% a year between now and 2028.
The company said that it expects to return at least 80% of its free cash flow to shareholders in the form of stock buybacks and dividends, up from a previous commitment to return 50% of free cash flow.
To that end, the company increased its stock buyback program by $5 billion, effective immediately.
Dell’s generosity toward its stockholders stands out in a technology industry where few large companies offer any dividends or share repurchases, choosing instead to reinvest excess cash in the growth of the organization.
Buy DELL Stock
What’s not to like about Dell Technologies? The company is on the cusp of huge growth because of a recovery in global PC sales and demand for its AI servers and new AI-powered computers.
On top of that, the company is extremely generous with its shareholders, rewarding them with increased dividend payments and stock buybacks. While the company’s share price has nearly tripled over the last year, analysts see more gains ahead.
All of these positives make the company a no-brainer investment. DELL stock is a buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
