Jim Cramer explains why Dell is a buy on the dip

After shares of Dell took a hit last week and continued to sink during Monday’s session, CNBC’s Jim Cramer told investors why he thinks the stock is a good buy at its current price level.

“The main problem is that Dell failed to live up to irrationally high expectations, the expectations that fueled the stock’s stunning rally this year,” he said.

Even though Dell pulled off an earnings and revenue beat, its shares fell 18% on Friday and finished down more than 5% on Monday. Investors were disappointed that Dell’s artificial intelligence efforts weren’t yet profitable, with management estimating margin declines.

According to Cramer, Wall Street had set unrealistic targets for Dell and had started “applying a higher level of scrutiny” to the profitability of its AI business.

Even if Dell’s AI offerings aren’t driving earnings just yet, Cramer said he was still impressed with sales momentum. In the earnings release, Dell said its AI server shipments doubled since the previous quarter and its backlog grew more than 30%.

Cramer called Dell’s recent decline a “healthy pullback for a stock that had gotten overheated.” Before reporting earnings, the company’s share price had more than doubled since the beginning of the year, according to FactSet, and after the declines it still remains up more than 70% year to date.

“Dell just got substantially cheaper while the expectations are more in tune with reality,” he said. “Meanwhile, I think the fundamental AI story’s very much on track, it just might take a little longer to play out, so I’d be a buyer.”

Dell did not immediately respond to a request for comment.