1 Beat-Down Artificial Intelligence (AI) Stocks to Buy Now Handover Fist

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When it comes to artificial intelligence (AI), megacap tech firms collectively known as the “Magnificent Seven” tend to get the most attention.

In my opinion, Magnificent Seven represents big-picture ideas featuring AI. For example members like Nvidia, TeslaAnd Microsoft It can help investors anticipate how AI is being deployed in data centers, autonomous driving, and cloud computing.

Smart investors understand that there are other opportunities in big tech as well. And it's the behind-the-scenes players who act as the individual threads that help stitch the big ideas together.

A chance I won't sleep over. Dell Technologies (NYSE: DELL). While shares are up 76% so far in 2024, the stock is down 20% since the company reported earnings on May 30.

Let's dive into how the deal fits into the broader AI equation and discover why the dip is an attractive buying opportunity now.

Why is Dell important to AI?

Dell divides its financial results into two segments: Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).

CSG is primarily a hardware operation, representing sales of the company's computers, workstations, and support services. Investors should keep an eye on Dell's ISG performance when it comes to AI.

This segment captures the company's presence in storage solutions, data center services, and network infrastructure.

Image source: Getty Images.

How is Dell's business?

This slide is from Dell's first quarter fiscal 2025 (ending May 3) earnings presentation.

Image source: Dell Investor Relations.

During the quarter, Dell's ISG business generated $9.2 billion in revenue — up 22% year over year. Servers and networking revenue grew 42% year-over-year to $5.5 billion, while storage solutions revenue was flat year-over-year and down 16% quarter-over-quarter.

The decline in storage revenue impacted ISG's operating margin, which actually fell 1% year-over-year to $736 million. However, management tempered expectations by explaining that “Q1 is seasonally our least profitable quarter at ISG, given the storage season, and we expect ISG operating margins to improve as the year goes forward.” will grow”.

According to IDC data, Dell has more market share in storage systems than its second, third and fourth largest competitors. Additionally, within the Server and Networking group, management said the company's PowerEdge XE9680 server is the fastest-growing solution in Dell's history.

I think these data points undermine Dell's strong position in the AI ​​realm. However, investors should exercise some patience as long-term secular tailwinds are fueling demand trends.

Great appraisal of the deal

The chart illustrates the price-to-earnings (P/E) ratio of a deal benchmark compared to a set of peers. There are significant anomalies from the chart. Super Microcomputer And Arista Networkswhich boasts a P/E multiple of over 40.

DELL PE RATIO CHART

A wise strategy is to use dollar cost averaging when building positions in stocks. While Dell shares have experienced some momentum, the disparity between the valuation multiples depicted here is hard to explain.

While Dell's P/E of 27 isn't cheap, I think the stock looks like a bargain compared to some of its competitors. Additionally, when it comes to the intersection of IT infrastructure and AI solutions, I think Super Micro in particular already has a lot of upside. For this reason, I see the deal as an under-the-radar opportunity.

Now looks to be an interesting time to acquire shares in Dell as the stock faces a selloff. I do not see any reason for the company to face any unwanted turbulence due to the stalling of its ISG business or competition. Rather, I think Dell is quietly carving out a respectable niche in the AI ​​landscape and see the company as an emerging leader in the making.

Should you invest $1,000 in Dell Technologies now?

Before buying stock in Dell Technologies, consider this:

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Adam Spatiko has positions at Microsoft, Nvidia and Tesla. The Motley Fool has positions in and recommends Arista Networks, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.

1 Beaten Down Artificial Intelligence (AI) Stocks to Buy Handover First Right Now was originally published by The Motley Fool.

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