Among the worst performing AI stocks recently

We recently published a list of The 20 worst performing AI stocks of the last week. In this article, we take a look at where Dell Technologies Inc. (NYSE:DELL) ranks compared to other AI stocks.

US stocks in September

September was a slow start for most U.S. stocks, and large-cap technology stocks were no exception. The main reasons for this performance are the renewed concerns about the health of the American economy, especially in light of the August employment report. The report highlighted the weakness of the U.S. labor market, which left investors feeling less confident about the economic situation.

On the stock side, many investor favorites in the artificial intelligence (AI) space have performed poorly so far in September, with losses ranging from around 4% to over 20% in the first week of September. The main reason for this decline appears to be that investors are simply not happy with the growth that the major AI companies are currently showing. While growth is definitely there, it continues to fall short of investor expectations, which have risen exponentially given the hype cycle surrounding AI stocks.

Are we really in an AI bubble?

The first week of September was actually the worst week for chip stocks in over two years. Many investors are now questioning whether AI is worth the sums being poured into it, leading to more scrutiny than ever before of corporate spending on AI. The increased scrutiny is largely due to investors and analysts now believing that many AI stocks are overvalued and over-rated and lack the means to justify that hype and valuation – essentially, the main concern is that we are in an AI bubble that is about to burst.

However, as with any tight market situation, there are differing opinions. In his September 6 interview on CNBC's “Closing Bell Overtime,” Gene Munster, Managing Partner of Deepwater Asset Management, was emphatic that we are not in an AI bubble. For him, the bigger problem in the AI ​​space is that every other company today tries to talk about AI and say they are working on integrating AI into their business – which creates too much noise in the market and drowns out the voices of companies that offer real substance in this space. He therefore noted that it is important for investors to be careful not to invest in every company that claims to work with AI, but instead focus on the better, perhaps more boring options on the market.

According to Munster, the main players you should invest your money in are primarily large technology companies, as they are the only ones willing to deliver substantial growth rather than just making noise. However, even today, investors are still not sure whether AI is a good investment. That's why we've compiled a list of the worst-performing AI stocks in September and explained whether these stocks are worth investing in, or whether they're just temporarily capitalizing on the hype surrounding AI.

Our methodology

We compiled our list by looking for AI stocks that posted losses of 10% or more during the first week of September. We then ranked the stocks based on their weekly decline through Friday, September 6. We also mentioned the number of hedge funds that hold shares in each stock.

Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).

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Dell Technologies Inc. (NYSE:DELL)

Weekly decline: 11.65%

Number of hedge fund owners: 88

Dell Technologies Inc. (NYSE:DELL) is an information technology company that sells and supports a variety of comprehensive and integrated solutions, products and services. The company is headquartered in Round Rock, Texas.

Dell Technologies Inc. (NYSE:DELL) is attracting increasing attention from investors as the company stands to benefit from rising investments in AI servers. Several major technology companies, such as Amazon and Microsoft, are increasing their investments in AI data centers, for example.

Regardless, Dell Technologies Inc. (NYSE:DELL) appears to be facing some headwinds, which may explain its recent share price decline. One challenge is the exit from the resale business for VMware. Additionally, due to an increase in Dell Technologies Inc.'s (NYSE:DELL) AI-optimized server mix and a more competitive pricing environment, the company saw its gross margin decline by 230 basis points, which came in at $5.5 billion. This is a potential warning sign for many investors, as the general trend seems to indicate that the more AI-optimized servers Dell Technologies Inc. (NYSE:DELL) sells, the more the gross profit margin declines.

The main reason for this trend in Dell Technologies Inc. (NYSE:DELL) is that its major customers such as Amazon, Alphabet, and Microsoft are all large technology companies with immense bargaining power. This causes these companies to negotiate lower prices for AI-optimized servers and data centers, resulting in lower profit margins for Dell Technologies Inc. (NYSE:DELL). Despite this, the company's CFO has stated that they still expect solid revenue growth in the second half of 2024. Therefore, investors currently following Dell Technologies Inc. (NYSE:DELL) should keep all these considerations in mind when trying to understand the stock's weekly decline and future growth prospects.

At the end of the second quarter, 88 hedge funds held long positions in Dell Technologies Inc. (NYSE:DELL) with a total stake value of $2.9 billion.

Overall DELL ranks 14th on our list of worst performing AI stocks last week. While we recognize DELL's potential as an investment, we believe AI stocks promise high returns and do so within a shorter time frame. If you're looking for an AI stock that's more promising than DELL but trades at less than 5x earnings, read our report on the cheapest AI stock.

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Disclosure: None. This article was originally published on Insider Monkey.