Dell tumbles after Barclays downgrade cites stretched valuation

What happened to Dell's stock?

Dell Technologies (NYSE: DELL) shares tumbled 11.3% on Wednesday, closing at $507.93. They had ended the prior session at $572.47. About $6 billion worth of shares changed hands.

Why it matters: The drop came on a weak day for technology stocks. The technology sector fund (XLK) fell 3.0%, and the S&P 500 slid 1.1%. Nvidia (Nasdaq: NVDA) shares dropped 3.2%.

Why did Barclays downgrade the stock?

Barclays analyst Tim Long cut his rating to Equal-Weight from Overweight. Equal-Weight is roughly a neutral rating. He also lowered his price target. That is his own estimate of where he expects the stock to trade in about a year.

Long pointed to a stretched valuation, meaning the share price already reflects a lot of good news, in his view. He also said broader business technology spending has not yet received much of a boost from AI.

The shares had climbed sharply this year on strong orders for AI servers and a growing backlog of business orders, according to reports.

What does Michael Dell say about demand?

Chief executive Michael Dell struck a more upbeat tone in a television interview on Wednesday. He said demand for AI infrastructure still exceeds supply, and he expects that gap to last for years. He acknowledged that long-range forecasts are uncertain.

He noted that new chip factories take years to build. AI models, by contrast, improve much faster. Newer AI systems need more memory and computing power, which he said is raising system costs and driving more spending.

He said large tech companies and leading AI labs drove the early spending. He sees adoption by ordinary businesses as an emerging source of growth, though still at an early stage. That view sits against Long's point that broader business spending has seen little lift so far.

What comes next?

What’s next: The open question is whether business spending on AI catches up with spending by the biggest tech companies, as Michael Dell argues, or lags, as Long contends. Broader events may also shape the mood for technology stocks: the Federal Reserve's interest-rate decision on Oct. 28 and the advance estimate of third-quarter GDP on Oct. 29.