Two Leading Artificial Intelligence Stocks to Consider Now

The bull market on Wall Street is continuing strong, supported by major players like Microsoft and Nvidia, both of which are achieving impressive results due to the surge in artificial intelligence (AI) demand. It can be challenging to know when to invest, especially with the market nearing all-time highs. Many investors are optimistic that the bull market will persist, fueled by a business-friendly administration and significant investments made by Big Tech in AI. Next year, these companies are expected to invest around $250 billion into capital expenditures. Furthermore, AI-driven revenues could surpass $820 billion by 2030.

This optimistic outlook doesn't guarantee that stock prices will keep climbing, as there are inherent risks in the market. Below, we will look at two distinct companies that have the potential for great long-term returns.

Dell's Vast Data Center Potential

This year, the number of hyperscale data centers—those over 100,000 square feet—has exceeded 1,000, with predictions of at least 120 new ones launching every year for the foreseeable future. These large facilities necessitate significant infrastructure, including servers, which is where Dell stands out as a market leader. Last quarter, Dell's Infrastructure Solutions Group achieved a record revenue of $11.6 billion, marking an impressive 38% year-over-year growth. Overall, the company reported total sales of $25 billion, an increase of 9% for the quarter.

Dell predicts a $124 billion addressable market in AI and a total infrastructure market of $265 billion by 2027. Competing companies are facing challenges that may enhance Dell's position in the market. For instance, Super Micro Computer has encountered difficulties, including adverse reports, delayed financial filings, and the exit of its auditors. These issues are likely to provide Dell with additional market share. As a result, several analysts have adjusted their price forecasts for Dell upwards this month.

Wells Fargo has increased its target from $140 to $160 per share, while Morgan Stanley has raised its target from $136 to $154. Though these targets are 7% to 11% above the current price, further growth in Dell's server market dominance could lead to even higher forecasts. Additionally, shareholders benefit from both a dividend and a share buyback program, which returned a combined $1 billion last quarter. Dell aims to raise its dividend by 10% annually until at least fiscal 2028. Given its prospects in AI, competitive struggles faced by rivals, and increasing price targets, Dell presents an appealing investment opportunity for the coming years.

Amazon's Massive Data Processing Capacity

Transitioning from a data center provider to a builder of these facilities, Amazon has begun construction on an $11 billion data center in Indiana. These facilities are crucial for boosting the processing and storage capabilities of Amazon Web Services (AWS).

While many still think of Amazon primarily as a retail company, AWS plays a pivotal role in its overall operations, contributing 60% of Amazon's $60.5 billion operating income over the past 12 months. AWS boasts an extremely high operating margin of 38% in the last quarter, compared to just 5% for the other two segments combined.

Interestingly, Amazon's stock is currently trading below its five-year averages in terms of sales, operating cash flow per share, and earnings, an unusual scenario in today's high-performing market.

So, how should investors approach a booming market? Investing at market peaks always carries risks, but it is crucial not to solely attempt to time the market. Just because major indexes are at near all-time highs doesn't rule out the potential for further gains. Here are two strategies to help manage risk:

First, consider dollar-cost averaging—buying shares over several months to take advantage of possible price declines and minimize the risk of buying at high levels. Alternatively, a "buy-the-dip" strategy could be employed, as the market often experiences corrections (declines greater than 10%). Although no corrections have occurred in 2024 yet, previous years saw multiple corrections. Regardless of your investment strategy, Dell and Amazon warrant consideration as a part of the AI investment landscape.

The author has a financial interest in Amazon and Dell Technologies. Furthermore, Wells Fargo is recognized as an advertising partner. John Mackey, the former CEO of Whole Foods Market (owned by Amazon), is a board member of this publication. Please be aware that there are conflicted interests as this publication holds positions in Amazon, Microsoft, and Nvidia.

Stocks, Investment, Market