Image Source: PixabayHaving partnerships with Nvidia (NVDA – Free Report) to develop computer servers that harvest artificial intelligence, Dell Technologies (DELL – Free Report) and Hewlett Packard Enterprise (HPE – Free Report) may be catching investors’ attention.AI servers and networking expansion have given both companies a boost in recent years with Dell reporting favorable Q3 results on Tuesday while Wall Street awaits Hewlett Packard’s quarterly report next Thursday, December, 5.However, despite compelling demand for AI servers, demand for traditional PCs remains soft which begs the question of whether now is still a good time to buy DELL or HPE stock.
DELL Q3 Results
Led by its Infrastructure Solutions Group (ISG), Dell’s Q3 sales increased 10% year over year to $24.36 billion although this missed Zacks estimates of $24.56 billion. ISG segment sales hit a quarterly record of $11.4 billion, soaring 34% from the comparative quarter thanks to servers and networking revenue of $7.4 billion, a 58% spike from a year ago.On the bottom line, Q3 earnings of $2.15 per share was up 14% from EPS of $1.88 in the prior-year quarter and eclipsed expectations of $2.06. More intriguing, Dell has now surpassed the Zacks EPS Consensus for 11 consecutive quarters posting an average earnings surprise of 10.44% in its last four quarterly reports.
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Dell’s PC Demand Warning (Guidance)
With Hewlett Packard’s results approaching next week, investors may want to take heed of Dell’s weaker-than-expected revenue guidance. Citing weaker demand for traditional PCs and increased competition, Dell’s Q4 sales guidance of $24-$25 billion came short of most analyst expectations with the current Zacks Consensus at $25.27 billion or 13% growth.
HPE Q4 Expectations
Reporting results for its fiscal fourth quarter next week, Hewlett Packard’s Q4 sales are thought to have increased 12% to $8.23 billion compared to $7.35 billion in the prior-year period. Q4 earnings are expected to rise 6% to $0.55 per share versus EPS of $0.52 a year ago.Notably, Hewlett Packard’s server revenue most recently soared 35% during its fiscal third quarter to $4.3 billion. Overall, Q3 sales rose 10% YoY to $7.71 billion and edged estimates of $7.66 billion. Furthermore, Hewlett Packard has reached or exceeded earnings expectations for nine straight quarters with an average EPS surprise of 7.48% in its last four quarterly reports.
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Tracking DELL & HPE Stock
Starting to highlight their improved financial metrics, Dell’s stock is up more than +60% this year with Hewlett Packard shares up a very respectable +25%. It’s also noteworthy that DELL and HPE have outperformed the broader indexes over the last three years with investor sentiment remaining high in regards to their partnerships with Nvidia.
Image Source: Zacks Investment ResearchLeading to the potential argument that Dell and Hewlett Packard may be cheaper alternatives to Nvidia’s dominance among the AI realm is their attractive valuations. To that point, DELL trades at 15.8X forward earnings with HPE at just 9.9X compared to NVDA at 46.2X. DELL and HPE also trade at considerable discounts to the S&P 500’s 25.3X forward earnings multiple and well beneath the optimum level of less than 2X sales. 
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Final Thoughts
While weaker PC demand may be keeping Dell and Hewlett Packard from firing on all cylinders, it’s hard to overlook their stocks for exposure to AI. For now, Dell and Hewlett Packard stock land a Zacks Rank #3 (Hold) as server growth has started to revamp these iconic computer companies as viable investments for 2024 and beyond.More By This Author:Kroger To Post Q3 Earnings: Key Factors Investors Should NoteGrab These 3 Small-Cap Value Mutual Funds For Solid Returns 3 First Eagle Mutual Funds Worth Considering For Your Portfolio
