Dell Founder and CEO Dumps $1.2 Billion in Stock: Should Investors Worry? | The Motley Fool

It’s always an interesting time when a shareholder or prominent executive in a major company buys or sells a lot of stock.

Unfortunately Dell Technology (DELL 1.56%) shareholders, founder, chairman, and CEO Michael Dell disclosed a major stock sale on Monday.

Dell had been thought of as a recent AI winner, and an undervalued one at that. The stock, while up 57% for the year, is still more than 33% below its highs set back in May.

Therefore, it is a strange time for the founder to sell many shares. 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 during September, which is good for $1.22 billion.

In addition, this recent sale was just part of Dell’s general unloading of Dell stock this year. Through June, Michael Dell had already sold some $2.12 billion of stock at a price in the $130s. In total, he sold 23 million shares or more in 2024.

So, this recent sale of $1.22 billion looks like a continuation, albeit at a lower price. Curiously, Dell did not sell any shares when the stock rose to $179 in May, but that may have been due to trading rules during the company’s May earnings release.

Is Dell overvalued? It doesn’t look like that

Dell shares are higher than they have been in the past few years, thanks to enthusiasm over the company’s prospects in artificial intelligence servers. Still, it’s not expensive compared to other stocks, especially those considered AI winners. The stock trades at just 20.8 times trailing earnings but just 14.4 times Dell’s 2025 earnings expectations, which expire at the end of January.

14 times earnings doesn’t seem like a high price, especially for a company focused on the AI ​​revolution. And based on the 2026 financial projections, which will end in January 2026, Dell is trading at just 12 expectations for 2026 today.

Wall Street doesn’t seem to think the stock is expensive, either. 17 of 21 analysts covering Dell rate it at least a “Buy,” with price targets ranging from $106 to $220, with an average price target of $146.

Does Michael Dell see something the pundits don’t?

The worst case for shareholders would be if Michael Dell sees a risk to those growth prospects that analysts don’t. Those risks can take two dimensions: One, building an AI infrastructure may not be as big as some think. Or two, competition may be entering Dell’s AI server business.

The “AI is ending” theory doesn’t seem to hold water. After all, in a late June interview on CNBC, Dell said he thought the AI ​​build was “in its infancy.” Therefore, it would be very strange if he was looking down when he said that. Other major tech players also remain strong on AI infrastructure.

For its part, Dell saw a rapid 23% growth of its AI servers in the July quarter to $3.2 billion. That amounts to a growth rate of 129%. While Dell noted that its AI server backlog was “only” $3.8 billion, executives also noted that its pipeline was “several times” backlog.

Now, there has been concern about the large volume 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 income fell year over year, with the infrastructure segment’s operating margin falling from 12.4% to 11% last quarter. Still, that was an improvement from the previous quarter, when the infrastructure operating margin was just 8%.

Still, server AI margins are worth monitoring going forward.

Tax concerns may be another factor

For shareholders, the best reason for the sale would be if Michael Dell was selling for personal reasons or tax reasons. The tax issue is looming, as profit tax rates could rise under the new administration next year. In addition, some of the tax cuts from the Tax Cuts and Jobs Act of 2017 are set to expire in 2025. Uncertainty about corporate tax rates, which could affect Dell’s bottom line, as well as potential tax increases capital gains, may have inspired Michael Dell’s. recent sales.

We’ve recently seen some long-term shareholders and founders make big gains this year. Warren Buffett himself has sold most of his largest holdings Apple and Bank of Americaciting tax increases as the reason. Meanwhile, his insurance deputy, Berkshire Hathaway Vice Chairman Ajit Jain has unloaded $139 million worth of Berkshire stock — more than half of his stake in the company.

Why wouldn’t I care

When asked about his stock sales in June, Dell replied that he regularly sells shares and remains an “enthusiast” of the stock for the long term.

And this is true. As of May, Michael Dell owned 330 million shares of Dell stock, split between Class A and C shares. Dell’s Class A shares are not traded, but have more voting power than publicly traded C shares.

From that perspective, Dell’s sales of 23 million shares or more this year is not much, only about 7% of its total shares.

Given the stock’s run this year and the possibility of higher corporate taxes or capital gains next year, it wouldn’t be surprising to see the company’s founder reduce his stock by a single-digit amount — even if that’s billions of dollars.