AI Stocks Are Searching for Bargains
Many stocks in the artificial intelligence (AI) space are skyrocketing nowadays. Recent data highlights that seven of the ten highest-performing tech stocks over the last five years have direct ties to the AI boom. These companies are either producing specialized AI hardware or offering equipment essential for making AI chips and systems. The S&P 500 market index nearly doubled over the past five years, while the slowest-growing AI stock under this lens gained an impressive 708% in that same timeframe.
However, the rising tide of AI isn't elevating every player in the digital landscape. A few top-notch AI stocks have been overlooked, presenting astute investors with an excellent opportunity to acquire promising AI stocks at bargain prices.
Dell: An Undervalued Gem in the AI Hardware Market
While the computer systems market is crowded, only a few builders can deliver truly massive systems. One standout is Super Micro Computer, a leading maker of cost-effective AI training computers with innovative cooling systems. Super Micro's stock has soared 500% over two years. However, issues like cash burn and concerns over accounting practices have made some investors wary of this company's future.
In contrast, fellow systems builder Dell presents a more attractive investment today. Dell's stock has only gained 133% since summer 2022, significantly trailing Super Micro's performance. Trading at affordable valuation ratios, such as 0.9 times trailing twelve-month sales and 15 times free cash flow, Dell continues to generate robust cash profits without the scrutiny affecting Super Micro.
Crucially, Dell has doubled its AI systems revenues from one fiscal quarter to the next and boasts a backlog of unfilled AI orders worth $3.8 billion—essentially two full quarters’ worth of orders. This healthy backlog suggests substantial growth opportunities for Dell as it rides the AI surge. Notably, Dell's stock is currently trading 38% below its 52-week highs, despite positive business momentum.
IBM: The Overlooked Enterprise AI Giant
IBM has a longstanding pedigree in the AI sector, heavily involved in AI research since the 1990s, consistently leading in global AI patent applications. Their portfolio of business-class AI tools is impressive, yet many investors have a hard time taking IBM’s AI capabilities seriously. The firm often appears slow compared to consumer-oriented AI products launched by companies like OpenAI, Meta Platforms, Microsoft, and Alphabet.
IBM focuses on enterprise clients, which typically necessitate lengthy approval processes before adopting new technology. Despite this slow approach, once contracts are secured, they tend to be long-term and lucrative, contributing positively to the bottom line. Although IBM's growth has only resulted in a 52% increase in its stock over two years, the potential for a surge in AI orders promises significant future rewards.
Considerations for Investment
Before investing in IBM or Dell, it's essential to weigh the long-term potential against current valuations and market conditions. Both companies present compelling cases for investment, with strong fundamentals and strategic positioning in the expanding AI market. Investing during these periods of relative valuation can yield fruitful returns as their growth trajectories align with the increasing demand for AI solutions.
Frequently Asked Questions
1. What makes Dell an attractive investment in AI?
Dell offers a low-priced stock with significant growth opportunities in the AI sector, backed by a growing backlog of AI orders worth $3.8 billion.
2. Why is IBM considered overlooked in the AI field?
IBM's dedication to enterprise solutions and its long history in AI research are often overshadowed by the consumer-centric advancements of other tech giants.
3. How have AI stocks performed recently?
AI stocks have seen tremendous growth, with many top performers significantly outpacing broader market indices like the S&P 500 over the last five years.
4. What risks should investors consider when looking at these AI stocks?
Investors should consider underlying issues such as cash burn and potential accounting concerns, which have affected companies like Super Micro Computer.
5. Should I invest in AI stocks now or wait?
If you're looking for long-term growth, investing now could be advantageous, as companies like Dell and IBM position themselves to ride the AI wave.
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