Top 2 Artificial Intelligence Stocks to Consider for Investment

The bullish sentiment on Wall Street continues to thrive, with firms like Nvidia and Microsoft showing significant growth due to the ongoing artificial intelligence (AI) revolution. However, investing at a time when the market is reaching near-record highs can be challenging. There are expectations that the bull market might extend, especially with a business-friendly administration approaching and massive investments from major tech firms in AI. In fact, these companies are projected to invest around $250 billion in capital expenditures in the coming year, and AI-related revenues could surpass $820 billion by 2030.

This optimistic outlook does not guarantee that stock prices will keep increasing, as risks always accompany investment decisions. Below, we'll explore strategies for buying stocks during a bull market and highlight two distinct companies that may offer excellent long-term investment opportunities.

Dell's Data Center Growth Potential

A notable trend in the tech sector is the increasing number of hyperscale data centers—those that exceed 100,000 square feet—which surpassed 1,000 this year. Projections indicate that around 120 new centers will be established annually for the foreseeable future. These expansive facilities require a solid infrastructure, particularly servers, and Dell stands as a market leader in this field. Recently, Dell's Infrastructure Solutions Group reported record revenues of $11.6 billion, reflecting 38% year-over-year growth. Overall, Dell's sales also rose by 9%, reaching $25 billion during the last quarter.

Dell anticipates that its addressable market in AI will reach $124 billion, with a total infrastructure market of $265 billion by 2027. Furthermore, Dell could gain additional market share due to recent issues faced by its competitor, Super Micro Computer, which is currently dealing with a negative report, postponed financial statements, and auditor resignations. These developments may enable Dell to capitalize further on its strengths. Recently, several analysts have upped their price targets for Dell's stock, with Wells Fargo raising its target from $140 to $160 per share and Morgan Stanley increasing its value from $136 to $154.

While these projections suggest potential growth, they currently reflect a 7% to 11% increase compared to Dell's current stock price. Should Dell maintain its stronghold in the server market, further increases in price targets are likely. Additionally, Dell's shareholders benefit from dividends and a share buyback program that rewarded stockholders with $1 billion last quarter. The company is also committed to raising its dividend by 10% annually through at least fiscal 2028. With clear AI opportunities, competitor challenges, and optimistic analyst expectations, Dell presents a compelling investment option for the coming years.

Amazon's Major Data Processing Initiative

Shifting focus from a company that supplies data centers to one actively constructing them, Amazon is making significant investments in its infrastructure. For instance, Amazon has kicked off the construction of an $11 billion data center in Indiana. These facilities are crucial for enhancing the processing and storage capabilities of Amazon Web Services (AWS).

While many still view Amazon primarily as a retail company, AWS has emerged as its major profit center, contributing 60% of Amazon's total operating income of $60.5 billion over the past year. Notably, AWS boasted an impressive operating margin of 38% last quarter, while the combined operating margin of its other segments was only 5%.

Interestingly, Amazon's stock is currently trading below its five-year averages for sales, operating cash flow per share, and earnings, which is unusual in today's soaring market.

So, how should one approach investing within a thriving bull market? While buying at market peaks carries inherent risks, it's crucial not to attempt market timing. Just because major indices are near all-time highs does not imply they will not reach greater heights. Here are two strategies to help mitigate potential risks:

- **Dollar-Cost Averaging**: This involves consistently purchasing a set number of shares over several months, which enables investors to benefit from price dips and lessens the impact of purchasing during market peaks.

- **Buy-the-Dip Strategy**: The market often experiences corrections (defined as declines greater than 10%). Although 2024 has not seen such a dip, prior years have witnessed several throughout 2023, 2022, and 2020. Regardless of the investment strategy you choose, both Dell and Amazon are attractive options to consider for gaining exposure to the burgeoning AI market.

stocks, investment, AI