The company’s founder sold billions of the AI server maker’s stock all year.
It’s always an interesting time when a notable shareholder or executive in a large company buys or sells a lot of stock.
Unfortunately for Dell Technologies (DELL 0.93%) shareholders, founder, chairman and CEO Michael Dell disclosed a massive stock sale on Monday.
Dell had been thought of as a recent AI winner, and a relatively low value. The stock, while up 57% on the year, is still more than 33% below its all-time high set in May.
So, it’s a strange time for the founder to sell a lot of stock. But do investors really have reason to worry?
Dell sells 10 million shares
On Monday, Dell disclosed that founder and CEO Michael Dell sold 10 million shares at an average price of $122.40 in September, good for a whopping $1.22 billion.
Moreover, this recent sale was only part of Dell’s general unloading of Dell shares this year. Until June, Michael Dell had already sold about $ 2.12 billion of stock at prices in the $ 130. In general, he sold about 23 million shares in 2024.
So this recent $1.22 billion sale looks like just a continuation, albeit at slightly lower prices. Interestingly, Dell didn’t sell any stock when the stock hit a high of $179 in May, but that could be due to trading rules at the time of the company’s May results release.
Is Dell overrated? It doesn’t seem like it
Dell shares are much higher than they have been in recent years, thanks to enthusiasm about the company’s prospects in artificial intelligence servers. However, it is not expensive compared to other stocks, especially those perceived as AI winners. The stock trades at just 20.8 times trailing earnings, but just 14.4 times earnings expectations for Dell’s fiscal 2025, which ends at the end of January.
14 times earnings doesn’t seem like a high price, especially for a company geared towards the AI revolution. And based on fiscal 2026 estimates, which end January 2026, Dell is trading at just 12 times 2026 expectations today.
Wall Street doesn’t seem to think stocks are expensive either. 17 of the 21 sell-side analysts covering Dell rate it at least a “Buy,” with price targets ranging from $106 to $220 and an average price of $146.
Does Michael Dell see something the analysts don’t?
The worst case scenario for shareholders would be if Michael Dell sees risks to those growth expectations that analysts don’t see. Those risks could take two dimensions: One, the development of AI infrastructure might not be as big as some think. Either way, competition may be creeping into Dell’s AI server business.
The thesis of “The AI buildout coming to an end” doesn’t seem to hold water. After all, in an interview at the end of June on CNBC, Dell said that he thought that the creation of AI was “in the beginning”. So it would be very strange if you see a slowdown while they say so. Other major tech leaders also remain quite bullish on AI infrastructure.
For its part, Dell saw a very rapid 23% sequential growth for its AI servers in the July quarter to $3.2 billion. That annualizes at a growth rate of 129%. While Dell noted that its AI server backlog was “only” $3.8 billion, management also noted that its pipeline was “several multiples” of the backlog.
Image source: Getty Images.
Now, there have been concerns about gross margins in the AI server space, which has become very competitive. That could limit the ultimate benefit of all this revenue growth. To be sure, Dell’s server gross and operating margins fell year over year, with infrastructure segment operating margins falling from 12.4% to 11% last quarter. However, it was an improvement from the previous quarter, when infrastructure operating margins were just 8%.
Still, AI server margins are worth monitoring going forward.
Tax problems can be another reason
For shareholders, the best possible reason for the sale would be if Michael Dell were selling for personal reasons or tax reasons. The tax issue is looming, as capital gains tax rates could go up under a new administration next year. In addition, some of the tax cuts from the 2017 Tax Cuts and Jobs Act expire in 2025. The uncertainty surrounding corporate tax rates, which could affect Dell’s bottom line, as well as the increase in ‘tax on capital gains, may have spurred Michael Dell’s. recent sales.
We’ve recently seen other long-term shareholders and founders contribute to big gains this year. Warren Buffett himself has sold massive portions of his largest holdings Apple and Bank of Americaciting potential tax increases as a reason. Meanwhile, his insurance deputy, Berkshire Hathaway Vice Chairman Ajit Jain just offloaded $139 million worth of Berkshire stock — more than half his stake in the company.
Because I didn’t worry
When asked about his share sales in June, Dell said he sells shares occasionally and continues to be an “enthusiastic” long-term shareholder.
And this is true. As of May, Michael Dell owns a whopping 330 million Dell shares, split between Class A and Class C shares. Dell’s Class A shares are not traded, but carry greater voting power than stock C publicly traded.
In this light, Dell’s sale of about 23 million shares this year is not so much, only that it amounts to about 7% of its entire holdings.
Given the run of stocks this year and potential higher taxes on corporations or capital gains next year, he is not worried about seeing the company’s founder cut his stake by an amount single digits – even if it amounts to billions of dollars.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Billy Duberstein and/or his clients have positions in Apple, Bank of America and Berkshire Hathaway. The Motley Fool has positions and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool has a disclosure policy.