Here Are My Top Artificial Intelligence (AI) Stocks to Buy Right Now (Hint: Nvidia’s Not on the List)

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Plenty of stock have ridden the boom in artificial intelligence (AI) this year. I’m going to focus on the two that make my buy list.

One aspect of AI software is the huge demand for data processing power, all of which has to be housed somewhere. This is driving demand for hyperscale data centers (those of more than 100,000 square feet), which are exploding in size and number. The chart below shows the recent acceleration.

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Data centers

The number passed 1,000 in 2024; researchers expect 120 to 130 to come online each year. Huge centers are being built by the tech giants. For instance, Elon Musk’s xAI data center will be 750,000 square feet and house 100,000 GPUs, while Microsoft’s data center coming to Wisconsin will cover two square miles of land.

Why is this important to a company like Dell Technologies (NYSE: DELL)? These centers need infrastructure, like racks, storage, servers, and software, which Dell provides.

Dell believes it has a $91 billion addressable market in AI infrastructure in 2025 that will balloon to $124 billion by 2027, and one of its largest competitors in the market, Super Micro Computer (NASDAQ: SMCI), is having troubles. Supermicro’s stock is down considerably after a short-seller released a detailed report alleging financial misdeeds and its auditor resigned, indicating potentially serious accounting problems. This could mean Dell will get more business while Supermicro deals with the fallout.

Driven by data centers, Dell’s servers and networking sales hit $7.7 billion last quarter on spectacular 80% year over year growth. Dell’s total sales last quarter hit $25 billion, up 9% year-over-year, and its operating income was up 15% to $1.3 billion. Dell’s PC sales have struggled as the economy slows and are little changed this fiscal year. However, Dell believes it could see an upgrade cycle driven by AI-ready computers, although this remains to be seen. Data center sales will likely be the most significant earnings driver from here on.

Investors who like dividends and stock buybacks will appreciate Dell’s operating strategy. The company commits to returning 80% of free cash flow to shareholders through these channels. The dividend was recently raised 20% to $0.445 per share quarterly for a 1.3% yield. The company also repurchased $1.4 billion in shares through the first two quarters of fiscal 2025 (ended Aug. 2). This is 1.6% of the current market cap repurchased in just six months.

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