Dell Founder and CEO Releases $1.2 Billion in Stock: Should Investors Be Worried?

It’s always an interesting time when a significant shareholder or executive of a large company buys or sells a lot of stock.

Unfortunately for Dell Technologies (VALLEY 0.27%) shareholders, founder, chairman and CEO Michael Dell revealed a massive stock sale on Monday.

Dell was considered a recent AI winner, and a relatively low-profile one at that. The company’s stock, while up 57% on the year, is still more than 33% below its all-time highs in May.

So it’s an odd time for a founder to be selling a lot of stock. But do investors really have reason to worry?

Dell sells 10 million shares

On Monday, Dell revealed that founder and CEO Michael Dell sold 10 million shares in September at an average price of $122.40, representing a whopping $1.22 billion.

Moreover, this recent sale was only part of the overall sell-off in Dell shares this year. By June, Michael Dell had already sold about $2.12 billion worth of shares at prices around $130. In total, in 2024 he sold as many as 23 million shares.

So the recent $1.22 billion sale appears to be a continuation, albeit at slightly lower prices. Interestingly, Dell did not sell any shares when its stock soared to $179 in May, but that may have been due to trading rules prevailing around the time of the company’s May earnings release.

Is Dell’s value overrated? It doesn’t look like it

Dell’s stock is much higher than it has been in the last few years, thanks to enthusiasm about the company’s prospects for artificial intelligence servers. Still, it’s not expensive compared to other stocks, especially those seen as AI winners. Shares are trading at just 20.8 times trailing earnings, but just 14.4 times Dell’s earnings expectations for fiscal 2025, which ends in late January.

14 times earnings doesn’t seem like a high price, especially for a company focused on the AI ​​revolution. Based on estimates for fiscal 2026, which ends in January 2026, Dell today trades at just 12 times 2026 expectations.

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

Does Michael Dell see something that analysts don’t?

The worst-case scenario for shareholders would be if Michael Dell sees threats to growth expectations that analysts don’t. This risk may have two dimensions: first, the expansion of artificial intelligence infrastructure may not be as large as some people think. Second, competition may creep into Dell’s AI server business.

The thesis “the construction of artificial intelligence is coming to an end” does not seem to be correct. After all, in an interview with CNBC in late June, Dell said that he believed the creation of artificial intelligence was “in its early days.” So it would be very strange if he noticed a slowdown as he said this. Other top technology executives also remain quite optimistic about AI infrastructure.

For its part, Dell reported very rapid 23% sequential growth in its AI server business in the July quarter to $3.2 billion. On an annual basis, this represents a growth rate of 129%. While Dell noted that its AI server backlog is “only” $3.8 billion, management also noted that the number of planned shipments is “several multiples” of the backlog.

There are now concerns about gross margin in the AI ​​server space, which has become very competitive. This may limit the ultimate benefits of revenue growth. Admittedly, Dell’s server gross and operating margins have declined year over year, with operating margins in the infrastructure segment dropping from 12.4% to 11% in the last quarter. However, this is an improvement over the previous quarter, when infrastructure operating margins were just 8%.

Still, AI server margins are worth monitoring in the future.

Another reason may be tax concerns

For shareholders, the best possible reason to sell would be if Michael Dell were selling for personal or tax reasons. There is a tax issue as capital gains tax rates could increase under the new administration next year. Additionally, certain tax cuts from the Tax Cuts and Jobs Act of 2017 will expire in 2025. Uncertainty over corporate tax rates that could impact Dell’s financial results, as well as potential capital gains tax increases Michael Dell’s recent sales may have spurred his decision.

We’ve recently seen other long-term shareholders and founders make big gains this year. Warren Buffett himself sold huge chunks of his biggest stocks Apple AND Bank of Americaciting potential tax increases as the reason. Meanwhile, his deputy for insurance, Berkshire Hathaway Vice President Ajit Jain just sold $139 million worth of Berkshire stock, representing more than half of his stake in the company.

Why shouldn’t I worry

Asked about selling shares in June, Dell said it sells them occasionally and remains an “enthusiastic” long-term shareholder.

And that’s true. In May, Michael Dell owned as many as 330 million Dell shares, split between Class A and C shares. Dell Class A shares are not traded, but they carry more voting power than publicly traded C shares.

In that light, Dell’s sales of about 23 million shares this year are not very large, representing only about 7% of its total holdings.

With the company’s stock trending higher this year and the potential for higher corporate taxes or capital gains next year, it’s not alarming that the company’s founder would cut his shares by a single-digit amount – even if it’s in the billions of dollars.