Reading the charts on this AI play to find the right price to buy on the dip

Dell Technologies is one of today’s leading artificial intelligence plays, which is remarkable having first gone public in 1988. Is the company re-inventing itself as one of the premier players in the AI server business? Possibly. We’ll be looking to add this name to our holdings, but with clearly defined risk based on the technicals, as well as an understanding of its potential fundamental growth over the coming years. The company is still reasonably valued at 26 times expected GAAP earnings of $4.68 in 2025, and just 16.50 times expected EPS in 2025. And Dell just recently increased the dividend by 20%. But there are headwinds that have the analyst community concerned about a moderate pullback in AI infrastructure spend by corporate management teams. Building inventories are another concern in an environment of bottlenecked GPU supplies, uncertain macro environment, and slowing PC demand. Addressing the inventory build (shown in orange) and the % gain in price (shown in purple) you can clearly see inventories have been drawn down to $3.62 billion from as high as $6.35 billion, producing an inverse correlation with price. Let’s examine the weekly Relative Rotation Graph of 3 key hardware stocks Apple (AAPL), Super Micro Computer (SMCI), and Dell (DELL). This chart brings stock, industry, and sector rotation alive by showing stocks rotate in and out of favor relative to a central benchmark, the S & P 500 in this case. SCMI has pulled back (relative to the S & P) from its meteoric rise in Q1 of ’24 as beaten down Apple and AI new-comer Dell are showing a north-east path of rotation into favor since last month. Turning to the technical price chart of Dell, we see this chart falling into an triangle consolidation pattern, which according to the Elliott Wave principle has 5 swings of lower-highs and higher-lows. With the weakness we’re seeing in the broader market lately, I will be looking to buy DELL on a pullback to $124.50 with stop losses clearly defined below the April low of $113.75 -Todd Gordon, founder of Inside Edge Capital, LLC DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.