2 Tech Stocks That Just Got a Massive Boost from AI
Key Points
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AI fueled a more than 20% spike in shares for both Dell and Block over the past week.
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Block announced that it is cutting its workforce by 40% and is using “intelligence tools” to do the work.
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Dell got a massive revenue boost from surging demand for its AI servers.
Investors have been questioning the returns that companies are getting from pumping billions of dollars into artificial intelligence (AI). Doubt and uncertainty are a big part of why many technology and AI-driven stocks have struggled in recent months.
Last week, two technology stocks got a huge boost from AI, but in very different ways. Hereʻs how.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
A person sitting at a desk, looking at computer screens in an office.
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1. Block
Block (NYSE: XYZ) had been one of those beaten-down tech stocks, off nearly 23% year to date, although it rallied last week. The fintech stock surged some 24% over the past week, mainly on the strength of its fourth-quarter earnings report, released on Feb. 26. The rally stemmed from a restructuring and cost reduction plan that management expects will improve efficiency and boost earnings.
That plan calls for 4,000 layoffs and reducing the staff by about 40%. The jobs will basically be done by AI. In turn, Blockʻs guidance called for an 18% increase in gross profit, a 26% boost in operating margin, and a 54% gain in earnings in the current fiscal year.
Here is the money quote from CEO Jack Dorsey in the shareholder letter:
The core thesis is simple. Intelligence tools have changed what it means to build and run a company. We’re already seeing it internally. A significantly smaller team, using the tool we’re building, can do more and do it better. And intelligence tool capabilities are compounding faster every week. I don’t think we’re early to this realization. I think most companies are late.
Welcome to the future.
Analysts at Bernstein estimate that the restructuring plan will save $750 million in 2026 and $1 billion on an annualized basis.
Block got a slew of analysts’ upgrades after earnings and has a median price target of $86.50 per share, suggesting 30% upside. It is also a decent value, trading at 17 times forward earnings, so it looks like a solid buy.
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2. Dell Technologies
Dell Technologies (NYSE: DELL) stock jumped about 21% since last week, also fueled by its most recent earnings report. The personal computer and server manufacturer had record revenue in Q4, up 39% year over year. Earnings rose 57%, including 45% on an adjusted basis.
The division that sells servers and AI infrastructure for data centers saw revenue explode 40%, compared to its PC division, where revenue increased 5%. Specifically, Dellʻs AI-optimized servers proved to be a massive growth engine, as sales rose 342% year over year.
Dell has $43 billion in backlog in AI-optimized server sales, so growth is expected to accelerate. The companyʻs guidance for the fiscal year calls for 23% revenue growth and 33% earnings growth, at the midpoints. AI server sales are anticipated to rise 103% this fiscal year.
The great thing is, Dell stock is still pretty cheap, trading at 11 times forward earnings.
Dell stock is also a consensus buy among analysts, with a median price target of $168 per share, suggesting 15% upside. Dell stock also looks like a solid buy right now, even after this surge.
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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Block. The Motley Fool has a disclosure policy.