Dell Stock Spiked After Earnings, But Is It Close to Fair Value? Shorting Puts and Calls Work Here

Dell Technologies (DELL) stock spiked almost $100 this week after its Sept. 1 Q2 earnings release, following strong earnings and free cash flow (FCF) performance. But it's near my prior FCF-based price target ( $525.71 ) from a month ago. Moreover, analysts' PTs are only slightly higher (+7.6%).

As a result, instead of buying DELL stock here, shorting out-of-the-money options may be a better play. That way, an investor can collect a premium while waiting to buy in (i.e., a short-put play) lower or sell at a higher price (a covered call play). This article will show how these work.

DELL closed at $524.14 on Friday, Sept. 4, up +23.3% from its pre-earnings close on Sept. 1 of $425.00. In fact, it's been quite volatile, as seen in the Barchart chart below. In fact, its implied volatility (IV) is relatively high at 62.50%, according to Barchart.

The single most important takeaway from Dell's Q2 earnings results is that its AI-optimized server sales rose 100% Y/Y to $16.4 billion , representing 34.9% of total sales. In fact, total server sales now comprise 57.3% of sales ( $26.9 billion ), with a Y/Y growth rate of 108%.

In other words, AI-related demand from data centers, hyperscalers, and related companies is pushing its revenue and cash flow significantly higher.

For example, analysts now project revenue this year (ending Jan. 31, 2027) will rise 70.5% to $193.53 billion (from $113.5 billion last year). Next year, they project a +14.6% revenue gain to $221.71 billion, but that could easily be too low, based on its surging quarterly AI-related server sales.

As a result, over the next 12 months, it's safe to expect at least $210.6 billion in sales. If DELL can continue to make at least a 5.7% FCF margin, as it has done over the last year (5.66% LTM FCF margin, according to Stock Analysis), FCF could reach $12 billion:

$210.6b x 5.7% FCF margin = $12 billion FCF over the next 12 months

That's well over the $8.55 billion it made in 2025, and implies a higher fair market value (FMV).

Let's assume the market will eventually give this higher FCF level at least a 3.33% FCF yield. In other words, if the company were to pay out 100% of its FCF in dividends, the dividend yield would be 3.33%.