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.
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1. Block
Block (XYZ 3.25%) 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.
NYSE: XYZ
Key Data Points
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.
2. Dell Technologies
Dell Technologies (DELL +2.06%) 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.
NYSE: DELL
Key Data Points
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.
