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Dell Technologies Faces Challenges Amid Weak PC Market

Dell Technologies (DELL) shares have dropped 10.1% YTD, lagging the industry and sector. Investor concerns are rising due to a weak PC market and declining shipments, impacting earnings estimates. However, strong AI demand might offer some hope for recovery.

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AI Rating:   5

Current Performance and Decline
Dell Technologies (DELL) shares have experienced a significant decline of 10.1% YTD, underperforming the Computer - Micro Computers industry, which has declined 5.8%, and the broader Computer & Technology sector, which has gained 1.9%. This underperformance raises red flags among investors as cautious spending by enterprises on PCs and storage is affecting DELL's near-term prospects.

Market Challenges
According to IDC data, DELL's PC shipments fell by 0.2% year over year in Q4 2024, totaling 9.9 million units, resulting in a slight drop in market share by 20 basis points to 14.4%. With leading firms like Lenovo and HP capturing larger shares of the market, these trends are concerning for investors looking for signs of recovery in DELL's performance.

Earnings and Estimates
The Zacks Consensus Estimate for DELL's fiscal 2026 earnings has been revised down by 2.2% in the last month, now standing at $9.36 per share. Although it's worth noting that DELL has successfully beaten the consensus estimates in the last four quarters with an average surprise of 10.44%, the downward revision may dampen investor sentiment.

Future Growth Potential
On a positive note, DELL is poised to benefit from strong demand in the AI sector. The company reported that AI server shipments reached $2.9 billion in Q3 FY 2025, with a backlog of $4.5 billion. This reflects a growing interest in generative AI applications and data center networking, which could drive strong top-line growth in the latter half of FY 2025. DELL projects revenue growth between 3% and 4% and earnings exceeding 8% over time.

Valuation and Shareholder Returns
Despite current challenges, DELL shares are considered cheap, with a forward P/E ratio of 13.23, significantly lower than the sector's average of 26.81. The firm also expects to return more than 80% adjusted free cash flow to shareholders and a dividend growth rate exceeding 10% from 2024 to 2028, which adds to its appeal for long-term investors.

Conclusion
The analysis indicates that while DELL faces short-term headwinds from declining PC market demand, the potential growth from AI services may act as a counterbalance. Investors should closely monitor both market dynamics and the company’s efforts to revitalize its performance in this evolving landscape.

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