2 Brilliant Stocks to Profit from the AI Infrastructure Boom

The burgeoning AI infrastructure market presents significant investment opportunities, with data center construction projected to reach $456 billion by 2030 and the AI server market $430 billion by 2033. Applied Digital, a high-growth data center operator, is expanding rapidly with a $5 billion Macquarie deal for 2 GW capacity, demonstrating strong revenue growth despite not yet being profitable. Concurrently, Dell Technologies, a dominant server supplier, reported robust Q1 growth in its AI-optimized infrastructure segment, with revenue up 12% and operating income up 36%, driven by a $14.4 billion AI server backlog, positioning it for margin expansion and potential P/E re-rating from AI demand.

Analysis

The AI infrastructure sector is positioned for substantial expansion, with market forecasts projecting the data center construction market to reach $456 billion by 2030 and the AI server market to hit $430 billion by 2033. Within this secular growth trend, Dell Technologies (DELL) presents a compelling case as an established leader. While its total revenue growth was a modest 5% year-over-year, this figure is weighed down by its legacy PC business. The core growth engine is its Infrastructure Solutions Group, which saw revenue increase 12% and operating income surge 36% in Q1, signaling significant margin expansion. Forward-looking indicators are robust, with a $14.4 billion backlog and $12 billion in new AI server orders last quarter alone. The stock's low forward P/E of 12.5 suggests the market has not fully priced in this AI-driven growth, which drove a 17% increase in EPS. In contrast, Applied Digital (APLD) offers a high-growth, pure-play but more speculative investment. Despite being unprofitable, APLD's revenue grew 22% year-over-year in Q1. Its investment thesis hinges on future expansion, primarily through a landmark deal with Macquarie Asset Management to fund up to $5 billion for over 2 gigawatts of new data center capacity. Potential catalysts, such as a sale of its cloud hosting business to focus on its core competency and a potential transition to a REIT structure, could further de-risk the profile, though execution risk remains a key consideration for this smaller-scale operator.

Key Decisions for Investors

• Investors should consider exposure to the AI infrastructure theme, given the strong secular growth forecasts for both data centers and specialized servers.
• Dell Technologies offers a value-oriented approach to this theme; its current forward P/E of 12.5 may present an opportunity for multiple expansion as its high-margin AI infrastructure business constitutes a larger portion of its revenue and earnings.
• For those with a higher risk tolerance, Applied Digital provides a speculative pure-play on data center construction, and its ability to execute on its Macquarie-funded expansion and achieve profitability are the key milestones to monitor.
• Consider allocating between established, profitable players like Dell and high-growth, higher-risk companies like Applied Digital to balance stability with potential upside in the AI infrastructure buildout.