Dell Technologies (Dell)

Riding the AI tailwind (?)

There is currently a huge investment boom in AI datacentres. Technology stocks have performed well. As we have noted before, one way for equity investors to play this is to identify the “shovel” suppliers.

This refers to Cecil Rhodes who made his fortune in the South African Gold rush in the 19^th century by selling shovels and supplies to the miners who flooded into the goldfields, rather than venturing on a very risky prospecting expedition himself.

Nvidia’s success in the AI boom has been as the classic seller of shovels in a gold rush. There is huge amounts of capital flowing into the sector. Each 1 GW of AI computing capacity in an AI datacentre costs up to $50bn to deploy. A part of this goes into the GPUs and Networking provided by Nvidia. A state-of-the-art datacentre might have a 200,000 to 700,000 of them. These might cost $8bn-$28bn for the GPUs alone.

Who are the other “shovel” providers in the AI datacentre boom? The expenditure will go into construction, servers, networking, power generators, computer room air handlers (CRAH), switchgears, chillers and a lot of electrical infrastructure, including kilometres of copper wiring.

The diagram above illustrates some of the elements with a list of the companies likely to benefit. The shares of some of these these companies have performed very well. Examples are Arista Networks which we have covered (and invested in), Jacobs Solutions, Johnson Controls and Vertiv Holdings.

In this note we will look at Dell Technologies which is seeing strong growth in demand for servers, storage, networking and infrastructure due to the AI investment boom.

Dell Technologies (Dell)

Introduction