Two artificial intelligence-focused companies with significant growth potential in 2025.
Two artificial intelligence-focused companies with significant growth potential in 2025.
It's no accident that shares of companies dealing with synthetic intelligence (SI) have dominated the bull market over the past year. Investments in SI tech are skyrocketing in the data center market and look to remain a lucrative prospect for investors. Here are two main providers of crucial SI infrastructure that appear set to deliver exceptional returns by 2025 and beyond.
1. Dell Technologies
Beyond being a well-known PC brand, Dell Technologies (DELL 3.40%) plays a significant role in updating businesses' information technology infrastructure, including AI-optimized servers. The stock has been a stellar performer lately, but its relatively low valuation compared to projected growth potentials makes it an attractive buy.
Historically, DELL's stock has traded at a low price-to-earnings ratio, typical for companies heavily dependent on the growing but moderate PC market. However, Dell's earnings per share increased by 86% year over year in Q2, leading to an escalating P/E ratio as Wall Street adjusts for projected growth in the server market in the ensuing years.
Dell's infrastructure solutions segment, which accounts for approximately half of its revenue and posted a revenue growth of 38% year over year in Q2, is set to continue gaining traction. Demand for AI servers is projected to intensify and maintain momentum through the year's end. Management reported $3.1 billion worth of AI servers shipped in Q2, with an expanding pipeline projected to surpass its $3.8 billion backlog.
The burgeoning demand for AI infrastructure solutions is expected to bolster Dell's margins and earnings. Analysts predict Dell's earnings to more than double to $10.77 by fiscal 2027 (ending in January annually). If Dell's P/E moves closer to 20, which is still less than the S&P 500 average, the stock could potentially hit $215 within the next year or so, representing a potential increase of 57% over the current stock price of $137.
2. Marvell Technology
Marvell Technology's (MRVL 2.56%) shares have experienced notable growth over the past year due to similar reasons as Dell. Marvell's top-tier semiconductor products for data centers and networking appear highly likely to benefit from the escalating investment in AI infrastructure. The stock recently reached new heights, with a year-to-date increase of 55% at the time of publication.
The stock has significant room to grow as demand for Marvell's data center chips begins to pick up steam. The quarterly revenue from the data center business nearly doubled to $881 million, driven by robust demand for Marvell's electro-optics custom silicon, storage, and networking switch products.
It's essential to note that Marvell manufactures semiconductors for various markets, including consumer electronics and wireless carriers. This mixed financial performance has resulted in a slight 5% year-over-year revenue decrease in Q2. However, as these weak markets rebound, revenue should bounce back.
By the time Marvell's business is operating at full capacity, the stock will be trading significantly higher. Management expects its enterprise networking and carrier markets to recover, which could make 2025 the turning point for Marvell's business. Marvell's trailing-12-month revenue was $5.3 billion through fiscal Q2, but analysts expect it to exceed $9 billion by fiscal 2027 (ending in January).
Marvell's shares are more challenging to value due to its inconsistent earnings history, yet analysts anticipate earnings growth of 23% annually over the coming years. The stock currently trades at a forward P/E of 37 based on this year's estimates, which corresponds to the last three years' average. By 2025 and beyond, Marvell shares are expected to exceed the S&P 500 index's historical average annualized return of 10%.
- Given Dell Technologies' strong performance in the server market and the increasing demand for AI-optimized servers, investing in its stock could be a wise financial decision, as analysts predict its earnings to more than double by fiscal 2027.
- With Marvell Technology's semiconductor products being crucial for data centers and networking, investors might consider adding MRVL to their portfolio, as its earnings are anticipated to grow by 23% annually over the next few years, outperforming the S&P 500 index's historical average annualized return.