These two stocks lead the trend in data center artificial intelligence (AI) but are you buying it now?
Data centers are one of the most important trends in artificial intelligence (AI). Over the next few years, the big tech companies will spend trillions of building in the US and internationally. It’s hard to catch up with the frequent announcement of new large projects, but I’ll give it a try. Here are some notable recent announcements:
Openai, creator of ChatGpt, announced the Stargate project last month. The company and its partners plan to spend $500 billion (YUP, “B” and 1 billion) over the next four years. especially, Arm Holdings and nvidia(NASDAQ: NVDA) According to Openai, it will be the “major technology partner.”
Founded by Elon Musk, Xai built “Colossus” in Memphis. GPU. Musk has stated plans to expand to 200,000 GPUs, with reports that one million of those will be available one day.
Amazon Plan to spend $150 billion Data Center It includes $10 billion to expand its Ohio facilities over the next few years. at the same time, alphabet and Meta It also plans and is currently underway to a multi-billion dollar venture.
Statista expects the data center market to rise rapidly, surpassing $600 billion before the end of the decade.
Image source: Statista.
There are currently two companies that are deeply involved in the industry that look like buying.
Nvidia’s 2024 was an absolute revelation. Revenue rose 126% to $61 billion behind incredible data center figures. Data center sales rose 217% to $48 billion. This was a tremendous thing, but it has become pale and white compared to 2025, which ended on January 31st. Its revenue totaled $91 billion, with data centers at $80 billion, with only three-quarters reported. An additional $37.5 billion was expected in the fourth quarter of fiscal year 2025, bringing total revenue to $128 billion.
Nvidia’s powerful graphics processing units (GPUs) are essential for AI data centers. The demand is so high that Nvidia can’t build them fast enough. Recently, there have been reports that Chinese company Deepseek has built a generator AI model that competes with only thousands of GPUs and millions of dollars in ChatGpt. The news sent shockwaves through the industry as investors were wondering whether this meant that big tech companies needed to have much less Nvidia chips.
However, investors should not abandon Nvidia via DeepSeek. Many industry experts have said Deepseek has exaggerated its claims, and in fact it could have 50,000 Nvidia GPUs, and it could have spent $1.6 billion. The shock above sent a stock dive. This is an opportunity for long-term investors to purchase NVIDIA for a reasonable valuation.
As can be seen above, the forward price (P/E) ratio of 26 is well below the historical average. Nvidia investors who took advantage of the above drops in 2023 and early 2024 also paid off. The news on Deepseek is interesting. However, Nvidia almost certainly dominates the AI industry for years to come.
GPUs aren’t the only hardware that enters these large data centers. It also requires infrastructure such as racks, servers, liquid cooling technology, and switches, and Dell is one of the world’s largest suppliers. Dell(NYSE: Dell) There are two reporting segments: the Infrastructure Solutions Group (ISG) that provides data centers, and the Client Solutions Group (CSG) that provides computers, laptops and related components to businesses and consumers.
The ISG segment rose 34% to $11.4 billion in the last quarter (third quarter of fiscal year 2025). Servers and networking led the way, increasing sales by 58% to $7.4 billion. Operating profit also rose 41% to $1.5 billion in this segment. In particular, ISG revenue accounted for 47% of Dell’s total revenue for the quarter, accounting for 38% of the same period last year. The company’s data center business will soon become its dominant segment.
One of the drawbacks of Dell is that CSG has not achieved the same success, mainly because consumer sales are slower. CSG total sales fell 1% to $12.1 billion in the last quarter, while consumer sales fell 18% to $2 billion. It takes time to turn the consumer business around. Dell wants AI to drive the upgrade cycle, but we haven’t seen it yet. Still, this segment is profitable and ultimately isn’t a drug.
Dell plans to raise more than 10% through fiscal 2028, paying a dividend that will increase by earning less than 2%. The company also plans to return 80% of its free cash flow to shareholders via dividends and share buybacks. Free cash flow of $5.6 billion in 2024 should see spikes moving forward as data center demand.
Analysts are bullish on Dell, with 20 out of 24 giving stocks a buy or strong buy rating, with an average price target of $151, or 50% above the price at the time of this writing. Dell’s position as one of the leading infrastructure suppliers for large data center projects will be an attractive inventory at AI Arena.
Consider this before purchasing shares on Nvidia.
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Suzanne Frey, an executive at Alphabet, is a member of the board of directors of Motley Fool. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development, Facebook spokeswoman and sister to Metaplatform CEO Mark Zuckerberg, is a member of Motley Fool’s board of directors. Bradley Gichard I have positions on Amazon and Dell Technologies. Motley Fool has positions for Alphabet, Amazon, Meta Platforms and Nvidia, and is recommended. To Motley’s fool Disclosure Policy.
