Dell Technologies (DELL 2.58%) has been making waves in the stock market this year. As of now, it has risen an astonishing 76%, driven by a remarkable turnaround in its business. The growing demand for its server solutions, especially those used for mounting artificial intelligence (AI) chips, has been the key factor behind this success.
Dell's 2024 Rally - A Test on Nov. 26
First Quarter's Impressive Growth
In 2024, Dell's stock has shown exceptional performance. It has risen by a significant 76%, thanks to the increasing demand for its server solutions. These server solutions play a crucial role in the mounting of AI chips, which has led to a surge in the company's fortunes.The company's fiscal 2025 third-quarter results, set to be released on Tuesday, Nov. 26, will be a crucial test. Investors are eager to see how Dell will perform and if its guidance will be strong enough to sustain this impressive rally.Second Quarter's Strong Performance
In August, when Dell released its fiscal 2025 second-quarter results, management highlighted that the company's growth is likely to pick up in the second half of the fiscal year. They guided for fiscal Q3 revenue of $24.5 billion at the midpoint, representing a 10% jump from the same quarter last year.Dell also expected adjusted earnings to reach $2 per share at the midpoint. However, Yahoo! Finance's consensus estimates were expecting slightly higher earnings of $2.04 per share on revenue of $24.7 billion. But given the solid demand for its AI servers, it won't be a surprise if the company beats these expectations.For instance, in fiscal Q2, Dell sold $3.2 billion worth of AI servers, compared to $2.6 billion in Q1. With an AI server order backlog of $3.8 billion at the end of Q2, a strong performance seems likely.Rival's Troubles and Dell's Advantage
Dell's rival, Super Micro Computer (SMCI 8.92%), is facing several problems. Negative news, including accusations of accounting manipulation, the resignation of its auditor, and the failure to file the annual report within the stipulated timeline, has led to a significant decline in Supermicro stock.It appears that Supermicro's customers are shifting their orders away from the company. Tom's Hardware reported that Elon Musk's xAI has taken $6 billion worth of AI server orders elsewhere from Supermicro. Dell could be one of the biggest beneficiaries as it is one of the largest server manufacturers in the world.Moreover, Dell reportedly commands half of the AI server orders from Elon Musk-led companies, with Supermicro controlling the other half. If Supermicro continues to lose AI server orders, the chances of Dell delivering better-than-expected results and guidance increase.Long-Term Growth Prospects
With the stage set for Dell to deliver better-than-expected results, investors should view a negative reaction to the company's results as a buying opportunity. The global AI server market is expected to grow significantly, reaching $177 billion in annual revenue by 2032, up from $38 billion last year.Dell management has also emphasized the solid pipeline of customers for its AI servers, which is significantly larger than its backlog. If the company can convert this pipeline into actual revenue and gain a bigger share of the AI server market, it could see a long-term acceleration in its revenue and earnings growth.Dell's earnings in fiscal 2024 fell 6% from the previous year to $7.13 per share. However, the company expects to deliver $7.80 per share in earnings in fiscal 2025, representing a 9% improvement. The forecast for the next couple of years indicates a stronger jump in Dell's bottom line.Currently, Dell is trading at 25 times trailing earnings and 13 times forward earnings, offering investors a good opportunity. It seems likely that the stock will take off after releasing its results on Nov. 26.