Dell Technologies(NYSE: DELL) is having a miserable 2025 so far. Shares of the information technology giant are down 28% this year, driven by a mix of tepid quarterly results and the potential effect of the tariff war on the company's prospects.
That's not surprising. Dell manufactures servers, personal computers (PCs), and other computer peripherals, sales of which could be affected by the Trump administration's "reciprocal" tariffs considering that the company's footprint is spread worldwide. Specifically, Dell's assembly lines, manufacturing, and supply chains are spread across China, Taiwan, Vietnam, Mexico, Malaysia, and other countries.
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Of course, the company does have facilities in the U.S. as well, but its globally diversified supply chain does expose it to tariff-related turmoil. However, the administration has paused the reciprocal tariffs for 90 days in a bid to negotiate with other countries, while it has exempted imports of semiconductors, computers, and smartphones, among some other electronic items from China.
While the Trump administration points out that it is taking a look at potential semiconductor tariffs, recent developments should be a relief for companies such as Dell. With that being said, will it be a good idea to start accumulating Dell stock in the wake of its pullback this year? Let's find out.
The tariff-related uncertainty is likely to weigh on the stock
The tariff-related uncertainty is going to weigh on Dell stock in the near term. The company's sales and earnings outlook could be affected negatively if the Trump administration decides to tax imports of computers and semiconductors. However, recent actions suggest that the administration is willing to be flexible when it comes to negotiating with its trade partners.
Though the economic tussle between China and the U.S. has been escalating of late, there are signs that both countries are willing to negotiate. So, it remains to be seen how this tariff-fueled economic turmoil will play out, and it cannot be denied that the uncertainty is going to take a toll on the likes of Dell in the near term.
For instance, ASML Holding, which is known for manufacturing critical chipmaking equipment, has just pointed out that its 2025 revenue could be at the lower end of its guidance range amid the uncertainty created by the tariff war. However, the company remains confident that artificial intelligence (AI) will remain a key growth driver for the semiconductor industry, and that's why it remains upbeat about the demand outlook.
A similar story could unfold for Dell, since it sells server and storage systems along with PC and other peripherals. The company is forecasting an 8% increase in revenue in fiscal 2026, which would be in line with its growth last year. Meanwhile, Dell expects its adjusted earnings to grow by 14% in fiscal 2026 to $9.28 per share, a projected improvement of four percentage points over the previous year.
However, as the following chart shows, analysts have reduced their earnings growth expectations from Dell for the current and the next two fiscal years.
This can be attributed to the potential effect of tariffs on Dell's performance. However, if the negotiations between the U.S. and the other countries turn out to be favorable, there's a chance that these earnings estimates could start heading higher once again. That won't be surprising, since Dell is serving a couple of huge AI-related addressable markets.
AI servers and PCs present a long-term growth opportunity for Dell
The global AI server market is expected to grow by almost 6x between 2024 and 2030, generating a whopping $840 billion in revenue at the end of the forecast period. Dell expects to sell $15 billion worth of AI servers in the current fiscal year, which would be a 50% improvement over last year. It remains to be seen if Dell manages to hit this target amid the ongoing turmoil, but if the tariff negotiations unfold favorably and chip imports remain exempted, there is a chance that it may be able to exceed its forecast.
That's because of the huge amount of money that's likely to be spent on AI infrastructure, especially in the U.S. For instance, OpenAI and SoftBank are planning a $100 billion investment in AI infrastructure this year under the Stargate Project, followed by an additional $400 billion over the next four years. Moreover, other AI companies have been placing large orders for Dell's servers. The company received a $5 billion order from xAI in February this year, taking Dell's AI server backlog to $9 billion.
More such orders thanks to projects such as Stargate and the huge AI investments lined up by tech giants in the U.S. cannot be ruled out, which could pave the way for Dell to sell more AI servers. On the other hand, Dell's position as the third-largest PC original equipment manufacturer (OEM) with a market share of 15% should allow it to capitalize on the growing demand for AI PCs.
The AI-capable PC market was worth an estimated $50 billion last year, and it is expected to grow by almost 5x by 2030, according to third-party research. Again, tariffs could weigh on PC sales in the near term. But it cannot be denied that AI PCs are going to be the future as they will allow users to run generative AI applications, and the demand for on-device AI applications is expected to increase at a nice clip.
That's why it would be a good idea for investors to consider accumulating Dell stock while it remains beaten down. After all, the stock is trading at an attractive 13 times trailing earnings and 9 times forward earnings. Its price/earnings-to-growth ratio (PEG ratio) of just 0.65 based on its five-year earnings growth estimates (as per Yahoo! Finance) further suggests that it is undervalued right now. That gives investors another incentive to buy it, considering its sunny long-term prospects.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML. The Motley Fool has a disclosure policy.
