Dell is a hot stock on the market on Wednesday. AI trade depends on it. Dell stock soared more than 13% on Tuesday night after the server maker released what was likely its best earnings report of the year. The stock has since given up most of its gains, rising about 5% in late morning trading. While the numbers and conference call commentary make it clear that the AI ramp-up is still in full effect, Dell’s price action will tell us whether Wall Street is interested and where AI trading goes from here. Early signs are validating recent moves to reduce exposure to AI amid concerns that even good news may not be enough to sustain gatherings. Last week saw a similar development, with NVIDIA soaring nearly 9% on the back of impressive quarterly results and an even better long-term outlook, only for the stock to give back most of its gains in subsequent sessions. The recent disruption in the AI trade is why we have been raising money for the club. The exit from Corning on Tuesday to protect solid earnings left our cash position at approximately 15%. If we were to leverage some of that dry powder, it could be used in the more defensive, non-AI areas of the market. Three months ago, Dell’s stock price soared nearly 33% in just one session after an incredible quarter and a massive 39% increase in its 2027 adjusted earnings per share outlook. At the time, we argued that this move was justified because Wall Street analysts ultimately raised their future EPS estimates to reflect the new guidance by roughly the same amount as the stock price increase. In other words, even though the stock price has increased significantly, the underlying valuation has remained largely unchanged. Notably, the stock has maintained its post-earnings gains over the past three months, indicating that this surge was indeed justified. This time, Dell has raised its fiscal year 2027 earnings outlook even more significantly, raising it by approximately 42.5% from $17.90 to $25.50, while TheStreet’s consensus earnings estimate for fiscal year 2027 rose almost 29% overnight. Despite this, the stock price has only increased by 5%. The difference between the earnings revision and Wednesday’s share price increase is large, suggesting the stock is undervalued when compared to full-year fiscal 2027 numbers. If we were in the market in May, we might easily argue that Dell stock should have more room to close that gap, perhaps even just this week, before we start digesting the updates and the stock starts to solidify. But we are not in the May market. We are in the September market. In the September market, data centers and AI are at issue ahead of the midterm elections. Elections mean uncertainty. On Wall Street, uncertainty means investors demand greater margins of safety, which leads to lower stock returns. History is also working against the market, as September is traditionally the weakest month of the year for stocks. This is why Wednesday’s trade in Dell stock will have a big impact on attitudes toward AI trading, at least in the short term. Will they progress to a level that will bring valuations similar to what we were expecting on Tuesday? Will it maintain its current level? This shows that investors still have enough interest to continue trading, but do they actually need that margin of safety? Or, as strong as the numbers were, will they sell, indicating that the buy-side community was already expecting it or simply feels that being bullish on AI trading at this point is like picking up pennies in front of a bulldozer? When I left Corning on Tuesday morning, we wrote: “There’s always the possibility that Dell’s results after the Bell and Broadcom’s Wednesday night results will improve sentiment within the group. If that happens, this Corning sale will look like a mistake, but the portfolio will benefit from some positions. If the market continues to ignore the positive results, this The sale of Corning, like many of our AI sales over the past few months, will help prevent the portfolio from giving away further gains.We don’t have a crystal ball, but we prefer to be on the defensive at this point.”To simply call Dell’s results and revised guidance “positive” would be the understatement of the year. In fact, Jim Cramer told CNBC on Wednesday that Dell’s quarter was “extraordinary” and that its current numbers were stronger than the company thought it would achieve in a few years. Jim added that Dell’s results also confirm a big lesson from Nvidia’s earnings: AI companies are now profitable. The market isn’t ignoring all this good stuff at the moment, considering Dell’s share price rally remains respectable. But whether it lasts throughout the day and into the next few days is very important. This will help you better understand the market’s current sentiment towards AI infrastructure companies and what value they have in a world where AI and the infrastructure being built to power it have become political footballs. (Jim Cramer’s Charitable Trust is long NVDA. See here for a complete list of Charitable Trust stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
