Dell's AI Stock Rally: Full Breakdown & Transcript

[00:01] beneficiary of the move to open weight models? Even Nvidia is now getting into supporting open weight models. Of course, Open AI and Anthropic probably models, especially since they make a whole lot of money on their closed

[00:16] weight models. Now, to be clear, the information just reported that Deep Seek has annualized revenue of probably somewhere around 400 revenue of probably somewhere around 400 to 600 million US dollars. If you think

[00:29] compared to the annualized revenue of the 65 billion dollars that Anthropic But, to me, what it shows is how much potential there is to move frontier potential there is to move frontier level AI to open weight. And how could

[00:43] beneficiary of those open weight models? Really important. So, we're going to First, quick understanding regarding open weight, just so we have a baseline here. It's different than open source. Okay? Open source would be like, "Here's

[00:57] everything on how our AI works." Instead, with an open weight system, you're really getting a pre-programmed software set that you can then fine-tune yourself on your own servers, and then nobody sees your fine-tunings or your

[01:12] adjustments. The benefits of that are You don't have to pay a lease to anyone. You could run it on your own hardware. You could run it locally. You could run it securely the way you secure it.

[01:24] Probably does mean there's there's got to be some more cybersecurity spending on endpoint management and server management for people but Dell is very interestingly positioned to take advantage of exactly this transition to

[01:39] to Dell, so I don't want to come across as a shill for Dell. I actually think the valuation's gotten a little ahead of itself because of the momentum that's come in, mostly post this Claude

[01:51] explosion, but I get it. Because let's actually look at earnings call from Dell, the last earnings call they had. They've got earnings report coming out in about 6 days.

[02:03] But this is really smart. Our Dell side agentic AI solutions help enterprises run production-ready AI locally, supporting use cases like coding, research, and secure private assistance while keeping sensitive data and IP on

[02:15] prem. This is like so freaking brilliant. Basically, Dell is saying, "Look, man, you want to run AI locally? You want to run these Chinese models, the Quen, the Deep Seek, the Moon Shot, or Nvidia's open weight model? No

[02:29] or Nvidia's open weight model? No problem. We will sell you the GPUs, the problem. We will sell you the GPUs, the CPUs, the rack, the switch, the UPS, not the shipping company, the battery. We'll sell you the whole kitten caboodle. Just

[02:43] pay us and we'll come install it for you. And then you'll be ready to use our software, which they call Dell side agentic AI solutions, so you can start running AI yourself right away.

[02:57] That package is actually really, really smart because anyone can just go smart because anyone can just go buy a GPU, a 5090. Anybody can go buy, uh, you know, an RTX 6000. Anybody can, frankly, call up Nvidia and get on the

[03:13] sales calls with them and start trying to put in orders for the multi-million Good luck getting an allocation, but you might be able to. might be able to. Dell has the supply to make that easy

[03:25] for their customers to where they say, "Look, we'll just go plug in this whole hardware that you want. We've already secured all of that supply." And they call it a trifecta. So, the trifecta they refer to is, uh, GPUs to train,

[03:40] CPUs to operate agentic AI, NAND to store, and they call it a trifecta of bullishness. And they actually brag about how they are able to onboard so much enterprise and they're seeing more customers trying to get this hardware.

[03:55] They're seeing budgets that are growing. Uh and they have the supply necessary to sell to those people. That's their argument. Obviously, memory pricing, which they talk about somewhere in here, uh is

[04:09] memory prices continue to rise. I mean, it's not always going to be a margin for the near-term future. But they argue that they're seeing a lot of demand from enterprises, and it's getting more extreme, not less. They grew their

[04:23] customer base 50% over just the last 6 months. 50% more customers ordering these sort of on-prem hardware sets, uh and they don't sell to the hyperscalers. They sell sovereign, neo cloud, and enterprise. And that's I think where AI

[04:38] is going. You know, the hyperscalers are trying to sell to OpenAI and Anthropic. Everybody else is trying to work with the enterprises. Like, how can you use cancer therapeutics like Moderna, or

[04:52] don't know, Meet Kevin and uh Meet Reinvest, right? obviously, you already know this. We've got a coupon code expiring J Hole on Friday. But I mean, we run our own GPUs. And you know, we've had to set up the

[05:07] Linux-based servers and do all that. It's hard. Dell kind of does a lot of that for you and enables you to run your own data. So, we don't have to give our proprietary data and weights and algorithms that we use to help determine

[05:21] estate, we don't have to give that data to Claude or OpenAI. That's exactly what Dell is trying to enable for people. We're going to make it easier for you to spend money on servers, and then run your own AI, which is brilliant. I'm a

[05:35] getting rid of the lifetime access to the Reinvest AI. It's going to be going to a monthly annual recurring revenue style subscription. So, if you want to you use that coupon code J Hole before it expires on Friday. Uh we'll also have

[05:50] an expiration simultaneously for the Meet Kevin membership on a Friday. But let's keep focusing on Delphi right now. Uh if you have any questions about those by the way, just email us at [email protected].

[06:02] Okay, so what do you have right here? You've got uh them saying more customers are looking to get access to this technology and there was really this explosion in customers over the last 6 months, which I attribute to this Claude

[06:16] co-work moment that we had in March and into April, where people are like, "Oh my gosh, this is it. The coding revolution, right?" That does create some of a risk factor because it does mean the stock is potentially hyped up

[06:31] right now because they have the supply for enterprise companies that are like jumping on the bandwagon post Claude. You know, for example, we've been building out our AI stack for the last year, but post post Claude in in

[06:45] a year ago have doubled in price, >> right? So it like where are you in the hype cycle? I obviously going to be a risk factor here. But I really do believe Dell is

[06:59] going to be a huge beneficiary of uh open weight models, especially since it allows you to protect more of your data uh on prem. I mean, look at this line. "We continue to expand Dell AI factory ecosystem with partners

[07:13] including Nvidia, Google Cloud, OpenAI, SpaceX, AI, ServiceNow, Palantir, CrowdStrike, blah blah blah." "And we are running Gemini models on prem for customers who want confidential computes so customers can run AI closer

[07:27] to where the data uh is meeting data residency, privacy, sovereignty a lot of hospitals, for example, that have HIPAA HIPAA requirements. There are uh financial firms that have to prove that their data is secure to FINRA.

[07:41] There are banks that have to verify that their data is secure and their customers data isn't getting screwed. In my opinion, that actually drives more of a need for cybersecurity endpoint management. Bullish net

[07:54] uh you know, Cloudflare CrowdStrike, SentinelOne. give them credit where credit is due. And so let's do a little bit of uh number math over here on Dell. First of all, their balance sheet, I call it

[08:07] yellowish. Okay, I've got if I put together all of my short-term assets, I in bills. They have a lot of bills to pay cuz they buy a lot of you know, supply and uh then then they need to turn around and sell the stuff.

[08:22] got like over a $50 billion backlog of stuff that they got to sell. So I'm not so worried about this. $27 billion of long-term debt, it's not great. Their free cash flow is decent. They've got a It's actually surprising. They've got a

[08:35] 4% cash flow yield because it's a $300 billion company, which even after it's run-up into the 400s, it's um you know, it's still not that big of a company. probably what kind of keeps like a boot on their neck, if you will. But they're

[08:50] doing some stock buybacks. Uh they're only issuing a tiny little bit of debt billion in dividends and repurchases they did. So cash flow's fine, too. is where you're going to understand more about the company. Their margins are

[09:04] compressing. AI server margins suck. They're like 4 to 7%. They're really bad. So the more of this AI stuff does it they sell, the worse their margins year their margins have declined from 21% to 17%. So their margins are in

[09:20] but that doesn't really matter because their operating income is skyrocketing because their SG&A and their R&D doesn't really move. Like you increased OpEx 9%, which basically means any increase in gross profit, which is this number right

[09:36] here, this $7 billion from $5 billion, that just flows straight to the bottom line effectively. like 3x. So their net income is exploding. Their

[09:50] projected EPS is $18.73 for the end of the year ending January Their growth projection sits at about 16% growth per year, which actually

[10:02] means they're trading for about a 1.5 sixish ish peg right now. Their net margin kind of sucks though, right? They're only bringing like 7 to 8% or whatever here. 7 7.8% to the bottom line. That's like a defense

[10:16] stock. You know, Lockheed Martin kind of margins. So the the margins suck and they're kind of worsening. But even though the margins suck, business that their EPS just keeps growing.

[10:28] Uh and so that's where you have to look and say the growth is good. You know, they're growing that earnings per share at expected to be 16% per year, but what multiple do you assign to them? If you assign them a 1.56 multiple,

[10:41] they're fairly valued today. If you assign them a Lockheed Martin kind of multiple of like 1.2 on a peg basis, they're overvalued. You know, what at at 1.2 divided by 1.56, they're overvalued by 23%. So a little aggressive.

[10:56] because I don't think structurally they're ever going to get to these they're ever going to get to these higher margins, if you really want to be mega bullish on them, you could argue that maybe their margins will expand and

[11:09] uh you know, like a two peg or something in the future, which at a two peg, you So I think Dell is going to be a major beneficiary of the move to open weight. I'm really bullish on what's going on

[11:24] with Dell, but I think right now they are a little aggressively priced. I think their valuation isn't the most ideal, balance sheet is yellowish, and because they've got supply. They've also gotten really hyped up

[11:39] there'll be better opportunities to buy it. So, in a weird way, I'm like bullish on what they're doing. I'm just bearish on the timing for acquiring them. Our stock AI, for example, which you, you know, can get in the Meet Kevin app,

[11:56] uh indicates that their pricing power is mid-range, balance sheet yellowish, kind their valuation is a little aggressive right now. I got a red flag on valuation Moving average because obviously the stock has done exceptionally well. So,

[12:12] I guess the way I would bottom line it is I love what they're [music] doing. They are selling the picks and shovels They are selling the picks and shovels for enterprise AI, and I am convinced

[12:25] AI. Just don't like their pricing here. I'd opportunity, but I couldn't be more bullish on the move towards enterprise there's my take on Dell. >> Why not advertise these things that you

[12:39] knows about this. >> We'll We'll try a little advertising and >> Congratulations, man. You have done [music] so much. People love you. People >> Kevin Paffrath, there, financial analyst and YouTuber, Meet Kevin. Always great

[12:51] and YouTuber, Meet Kevin. Always great to get your take.