Investment Opportunities in Artificial Intelligence: Two Stocks to Watch during the Infrastructure Expansion
In a significant development for the technology sector, the global AI server market is projected to grow substantially over the next decade. According to recent forecasts, the market size is expected to increase from $31 billion in 2023 to approximately $430 billion by 2033, indicating a robust compound annual growth rate and a significant shift towards AI-focused computing infrastructure globally [1].
This growth reflects the booming need for computing infrastructure capable of handling AI workloads, including training and inference tasks, which require powerful, specialized hardware. While other related markets, such as the overall server market and AI chips market, also show strong growth, the AI server market's growth is particularly extraordinary, pointing to AI becoming a major driver for server investments and upgrades in this period.
Dell Technologies, the leading supplier of servers worldwide, is well-positioned to capitalise on this trend. The company's revenue from infrastructure solutions, including AI-optimized servers, grew 12% year over year in Q1. Moreover, Dell's order bookings for its AI servers reached $12 billion last quarter, higher than all of its shipments in the previous fiscal year. The company's backlog stood at $14.4 billion, suggesting strong growth potential for its AI infrastructure group.
Dell's stock continues to trade at a cheap forward price-to-earnings (P/E) multiple of around 12.5, making it an attractive investment opportunity for those seeking market-beating returns over the next five years. As Dell's infrastructure business continues to grow and make up a higher portion of revenue, the stock's P/E is likely to expand.
Meanwhile, Applied Digital, a builder and operator of data centers, is positioned to benefit from the AI infrastructure boom. The company currently has 286 megawatts of capacity for crypto mining customers at two locations in North Dakota, running at full capacity. Applied Digital has a deal with Macquarie Asset Management to invest up to $5 billion to complete the buildout of its Ellendale campus, enabling the company to construct more than 2 gigawatts of data center capacity.
While Applied Digital is not yet profitable, it is expected to become profitable as new facilities open and revenue grows. The company's stock currently trades at $2.2 billion market cap with $221 million in trailing-12-month revenue. Potential catalysts for the company include a potential sale of its cloud hosting business and a possible transition to a data center real estate investment trust (REIT).
In terms of financial performance, Dell's total revenue grew just 5% year over year last quarter, but the improving margins in the infrastructure segment drove a strong 17% year-over-year increase in earnings per share. Servers and networking revenue grew 16% for Dell, while segment operating income jumped 36% over the year-ago quarter.
In conclusion, the AI server market's projected growth of over 13-fold within the decade from 2023 to 2033, reaching $430 billion, is a testament to the increasing demand for AI-focused computing infrastructure. Companies like Dell and Applied Digital are well-positioned to capitalize on this trend, offering attractive investment opportunities for those seeking market-beating returns over the next five years.
[1] Source: Statista
- The extraordinary growth of the AI server market, indicating an increase from $31 billion in 2023 to approximately $430 billion by 2033, offers a substantial investment opportunity for those seeking market-beating returns over the next five years, particularly in companies like Dell Technologies.
- Dell Technologies, a leading supplier of servers worldwide, has capitalized on the AI infrastructure boom, with its revenue from AI-optimized servers growing 12% year over year in Q1 and its order bookings reaching $12 billion last quarter.
- Applied Digital, a builder and operator of data centers, is well-positioned to profit from the AI infrastructure boom, particularly as it plans to complete the buildout of its Ellendbourne campus with a $5 billion investment from Macquarie Asset Management, enabling the company to construct more than 2 gigawatts of data center capacity.
