Undervalued and Ignored: 2 Artificial Intelligence (AI) Stocks With Market-Beating Potential

The article highlights Applied Digital (APLD) and Dell Technologies (DELL) as undervalued investment opportunities within the burgeoning AI infrastructure sector, contrasting with higher valuations for AI chip and software companies. Applied Digital, which recently surged 132% following an $11 billion AI infrastructure deal with CoreWeave, is strategically positioned to alleviate future data center capacity and power shortages, with management targeting $1 billion in operating profit within five years. Dell Technologies, a leading supplier of AI-optimized servers, reported a 19% Q2 revenue increase driven by strong demand and projects a $356 billion AI hardware and services market by 2028, yet trades at a conservative sub-15x forward earnings, indicating significant upside potential for both companies as AI demand accelerates.

Analysis

The artificial intelligence infrastructure sector presents compelling investment opportunities with more conservative valuations compared to AI software and semiconductor firms. Applied Digital (APLD) and Dell Technologies (DELL) exemplify this trend. Applied Digital has validated its strategy of building specialized data centers for AI workloads with a landmark $11 billion deal with CoreWeave, which catalyzed a 132% stock surge in the last quarter. Despite a recent net loss of $26 million, the company reported 41% year-over-year revenue growth and has critical advantages in securing power and accelerating data center build times to approximately one year. Management's guidance for $1 billion in operating profit within five years, coupled with a current market capitalization of $6.2 billion, suggests the stock trades at just 6 times this long-term target, with further major deals reportedly in advanced negotiation stages. Concurrently, Dell Technologies is capitalizing on the demand for AI-optimized servers, which drove a 19% year-over-year revenue increase to nearly $30 billion in its record second quarter. The company's Infrastructure Solutions Group contributed over $16 billion to this total. Dell's strategic relationships, particularly with Nvidia for early access to new chips, and its ability to deliver integrated, high-value server solutions position it strongly within a market that management now estimates will reach $356 billion by 2028. Despite this outlook and a growing five-quarter pipeline, Dell's stock trades at a modest forward price-to-earnings multiple of less than 15, indicating that its growth potential may be underestimated by the market.

Key Decisions for Investors

• Investors seeking exposure to AI growth should evaluate infrastructure providers like Applied Digital and Dell, which may offer more attractive entry points compared to highly-valued software and chip companies.
• For those with a higher risk tolerance, Applied Digital offers a pure-play, high-growth opportunity; key catalysts to monitor are the announcement of new large-scale contracts and tangible progress toward its stated five-year, $1 billion operating profit goal.
• Dell represents a more established investment, with a valuation below 15x forward earnings that does not appear to fully reflect the robust demand for its AI servers or management's significantly expanded long-term market forecast.
• Consider that the upside for both stocks is heavily contingent on a market re-rating; for Applied Digital, this depends on continued deal execution, while for Dell, it relies on sustained earnings growth from its AI segment.