Is Dell stock one of the most underlooked AI plays?

Dell stock (DELL) has taken a beating over the past two weeks as investors reacted to mixed quarterly earnings that showed lagging PC sales.

After its latest earning report on Nov. 27, Dell nosedived 11%. The stock is down 15% since Nov. 25 and more than 31% from its record high set at the end of May.

Is the sell-off warranted? Although Dell is best known for personal computers, the company has a proven track record of pivoting to high-growth industries, the latest being AI.

On its face, Dell’s third-quarter earnings report wasn’t bad. The company reported per-share earnings of $2.15 on revenue of $24.4 billion. Earnings were higher than expected, but sales lagged Wall Street’s forecasts.

Analysts say concerns about Dell’s AI growth were the main reason for the sell-off after chief operating officer Jeff Clark told investors.

“This business will not be linear, especially as customers navigate an underlying silicon roadmap that is challenging.”

Despite management’s warning, Dell remains a top vendor for businesses looking to bootstrap powerful AI processing capacity. For this reason, analysts believe it has a significant upside as the AI industry continues to grow.

Dell: An unexpected AI play

Although Dell isn’t a chipmaker, it provides the hardware necessary to power high-performance servers and other AI applications.

According to researchers at Goldman Sachs, the growth in AI will be accompanied by an expansion of infrastructure and data centers that make the technology possible.

Whereas companies like Nvidia sell the chips needed to process AI and high-performance computing, Dell provides the completed systems, according to CNBC tech reporter Kif Leswing.

Dell’s Jeff Clark told investors that the company’s third-quarter sales saw a “rapid shift” to its Blackwell design, which is a GPU architecture developed by Nvidia.

“We’re only in the very early innings of enterprises learning to deploy AI,” said Clark.

Dell’s AI sales are part of its infrastructure solutions, which saw revenues surge 34% in the third quarter to $11.4 billion. Infrastructure solutions are now almost on par with its client solutions group, which sells PCs and laptops.

TD Cowen analyst Krish Sankar estimates that Dell’s total AI pipeline is valued at just below $20 billion, including $8 billion for the third quarter alone.

Sankar said these figures are a “better representation of actual demand” for Dell’s AI infrastructure.