Investing in the Right Tech Stocks
Investors searching for lucrative opportunities in the stock market are looking in the right direction. Tech stocks have significantly outperformed the broader market in recent years. For instance, the Technology Select Sector SPDR ETF has nearly doubled the return of the S&P 500 since 2019. This article explores two stocks with near-term growth catalysts that are worth considering.
1. Dell Technologies
Dell Technologies (NYSE: DELL) is widely recognized as a PC brand, but it's also a supplier of storage, networking, and artificial intelligence (AI) solutions for data centers. Strong demand for AI servers has fueled Dell's business this year and driven the stock to new highs. The momentum in Dell's server business positions the stock as a compelling buy after a recent pullback.
Market Performance and Financials
Dell remains reliant on a sluggish PC market, where its client solutions group faced flat revenue growth in the fiscal first quarter of 2025, which ended recently. This segment constitutes a significant portion of Dell's total revenue, however, its infrastructure group, which includes servers, experienced a robust 22% year-over-year increase, leading to an overall revenue growth of 6% to $22 billion.
Future Potential and AI Demand
Dell's strong backlog of AI server orders suggests it is just beginning to capitalize on this lucrative opportunity. The order backlog surged approximately 31% Quarter-over-Quarter to $3.8 billion, indicating that AI servers are quickly scaling into a significant revenue contributor.
The AI server market is still in its infancy. Companies are likely to continue ramping up their investments in AI, as most leaders believe it grants a competitive edge. Moreover, Dell benefits from the growing emphasis on IT spending, which is expanding relative to the economy, poised to enhance its overall business in the long term.
The reason for the stock's decline over the past month stems from the expectation that a greater sales mix from AI servers might put pressure on the company's margins in the short term. Management anticipates adjusted earnings to rise approximately 7% this year, which is lower than the anticipated full-year revenue growth of approximately 8%. However, the critical aspect is that AI infrastructure solutions are expected to yield long-term benefits for the company's revenue and profits. This leads to Wall Street analysts projecting Dell's earnings to grow at an annualized rate of 12% in the years ahead.
2. Netflix
Netflix (NASDAQ: NFLX) has experienced significant growth since recovering from a downturn in 2022. Subscriber growth has surged to a mid-teens rate, primarily due to the cessation of password sharing and encouraging more users to pay for subscriptions. Investors may still be underestimating Netflix's potential for margin expansion, earnings growth, and pricing power as it ventures into live streaming content, particularly in sports.
Digital Entertainment Analytics
Having grown into a prominent brand in digital entertainment with 277 million global subscribers, Netflix has mastered the art of understanding viewer preferences. This strategic insight into customer desires is the driving force behind its focus on live content streaming.
Upcoming Live Content and Market Trajectory
The success of content such as Chris Rock's live special and the recent livestream of The Roast of Tom Brady emphasizes Netflix's ability to captivate audiences, setting the stage for major events like two NFL games scheduled for streaming on Christmas Day. Wall Street analysts view live sports as a potential catalyst for Netflix's stock performance. The consensus suggests Netflix's earnings could grow at an annualized rate of 27% in the next few years. This growth considerably supports the valuation of shares, justifying a forward price-to-earnings (P/E) ratio of 37. Even if the stock price stabilizes at a lower P/E, this dynamic growth rate could double share prices within five years.
Should You Invest in Dell Technologies or Netflix Today?
Before investing in either Dell Technologies or Netflix, consider the market dynamics, growth potential, and overall financial health of these companies. Both have exhibited significant momentum, positioning them effectively within the tech landscape.
Frequently Asked Questions
1. What are the growth prospects for Dell Technologies?
Dell's strong AI server backlog and revenue growth in its infrastructure segment indicate promising growth prospects.
2. How does Netflix plan to enhance its content offerings?
Netflix is expanding its live streaming capabilities, notably in sports, to attract and retain subscribers.
3. What financial indicators suggest Dell is a buy now?
The forecasted annualized earnings growth rate of 12% and a current low P/E ratio make Dell attractive for investment.
4. What is the significance of live streaming for Netflix's revenue?
Live streaming is expected to enhance subscriber engagement and could lead to a pricing increase, impacting revenue positively.
5. Are tech stocks a good investment right now?
Given the continued growth in tech sectors and innovations, investing in tech stocks like Dell and Netflix may offer lucrative returns.
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