In January, two impressive AI-related stocks are worth considering for a long-term investment.
The escalating influence of artificial intelligence (AI) on various economic sectors is projected to add countless trillions to the global GDP. Intriguingly, major investors are already bearing witness to this shift, as top AI hardware and software corporations report remarkable expansion in their businesses and revenues. To capitalize on this potential goldmine, consider two stocks that are primed to fill the escalating demand for AI infrastructure in the near future. Here's why.
1. Nvidia
One of the most lucrative stocks to invest in the burgeoning AI technology sector is the top supplier of graphics processing units (GPUs), Nvidia (NVDA 3.10%). Data centers rely on GPUs for AI training and inferencing. Nvidia recognizes a potential $1 trillion opportunity as data centers upgrade their outdated computing systems to AI-enhanced hardware.
AI is upending how enterprises function, with Nvidia dubbing it the contemporary industrial revolution, and the company is thriving at an unprecedented pace. Over the last three years, Nvidia's annual revenue has quadrupled. Analysts predict the company will report a staggering $129 billion in total revenue for fiscal 2025, indicating a 112% year-over-year increase, as per Yahoo! Finance. Over 80% of their revenue is fueled by demand for data center chips and networking products.
The $1 trillion opportunity encompasses about $250 billion in annual spending on data center infrastructure. However, the opportunity may be larger, considering the predicted growth in data centers. McKinsey estimates that data center capacity demand could triple by 2030. This would significantly benefit Nvidia, which is estimated to control over 70% of the AI chip market.
What's notable about Nvidia is its financial solidity. Over the last four quarters, it generated $56 billion in free cash flow on $113 billion of revenue. With enough resources to outspend competitors on GPU technology, Nvidia can consistently launch innovative products to drive growth, with demand for its upcoming Blackwell computing platform reportedly "staggering."
While Nvidia's revenue growth might not continue to double annually, its potential to compound in value alongside the growth of the business makes it a rewarding investment.
2. Dell Technologies
The burgeoning AI technology market is propelling Dell Technologies (DELL -0.43%) back to growth stock status. Approximately half of its business is derived from PC, workstation, and branded peripheral sales, which have struggled due to a sluggish PC market. The other half of Dell's portfolio is flourishing, with robust demand for AI-optimized servers fueling rapid growth in its Infrastructure Solutions Group.
Dell's Infrastructure Solutions Group reported a 34% Q3 revenue growth compared to the previous year, consistent with McKinsey's estimate of data center capacity's continued growth. The surging momentum in AI servers is unrelenting. Dell reported a strong AI server backlog of $4.5 billion, with its five-quarter pipeline expanding 50% in the last quarter!
Beyond merely selling servers, Dell offers additional services such as power management, cooling solutions, networking switches, and maintenance services, which significantly boost its margins as it sells more servers. Analysts predict earnings to climb 10% for 2025, increasing to 20% in 2026.
A recovery in the PC industry would certainly serve as an additional growth catalyst. Dell anticipates the launch of AI PCs that will stimulate increased enterprise demand for PCs and further strengthen revenue growth. The impending demise of Windows 10 support for PCs may spur an upgrade cycle, fueling even stronger revenue growth for Dell.
Dell stock trades at a sensible valuation of 15 times this year's earnings estimate, with a 1.5% dividend yield, reflecting management's palpable optimism in the long-term growth of the business. It certainly seems like a solid buy due to the AI server opportunity alone, while a PC recovery could further amp up its stock price potential.
- In light of the increasing demand for AI infrastructure, major financiers are keenly eyeing opportunities in the stock market, particularly companies like Nvidia, which has seen its annual revenue quadruple over the past three years due to the rising demand for its GPUs in data centers.
- Dell Technologies is another company benefiting from the AI revolution, as its Infrastructure Solutions Group, which focuses on AI-optimized servers, reported a 34% revenue growth in Q3, driven by the surge in demand for AI technology. This growth is projected to continue, with analysts expecting earnings to climb 10% for 2025 and 20% in 2026, providing a solid investment opportunity for those interested in the realm of finance and investing.
