It's no coincidence that the stocks of companies involved in artificial intelligence (AI) have led the bull market over the past year. Spending on AI technology is ramping up in the data center market and continues to look like a profitable opportunity for investors. Here are two key suppliers of mission-critical AI infrastructure that are poised to deliver excellent returns in 2025 and beyond.
1. Dell Technologies
Dell Technologies(NYSE: DELL) is more than just a PC brand. It is a major player in helping companies modernize their information technology infrastructure, including servers optimized for AI. The stock has been a terrific performer over the last few years but still trades at a valuation that is compelling relative to long-term growth forecasts.
The stock has historically traded at a low price-to-earnings multiple, which is consistent with companies dependent on a slow-growing PC market. But with Dell posting a jump in earnings per share of 86% year over year in the second quarter, the stock's P/E ratio has been increasing as Wall Street starts to price in many years of growth ahead in the server market.
Dell's infrastructure solutions group, including server sales, makes up roughly half of its business and posted a revenue increase of 38% year over year in Q2, and it's just getting started. Demand for AI servers is accelerating and will continue to strengthen through the end of the year. Management said it shipped $3.1 billion worth of AI servers in Q2, but there remains an expanding pipeline that is multiples of its $3.8 billion backlog.
Surging demand for AI infrastructure solutions should also benefit Dell's margins and earnings. The Wall Street consensus has Dell's earnings nearly doubling to $10.77 by fiscal 2027 (which ends in January each year). If the stock's P/E moves up to around 20, which is still a discount to the S&P 500 average, the stock could potentially reach $215 within the next year or so, representing upside of 57% over the current share price of $137.
2. Marvell Technology
Shares of Marvell Technology(NASDAQ: MRVL) have been on a good run over the last year for similar reasons as Dell. Marvell's leading semiconductor products for data centers and networking could benefit tremendously from the growing investment in AI infrastructure. The stock recently reached new highs and is up 55% year to date at the time of writing.
The stock has room to run, with demand just starting to ramp up for Marvell's data center chips. Revenue from the data center business nearly doubled year over year to $881 million in Q2. Growth was driven by strong demand for Marvell's electro-optics custom silicon, storage, and networking switch products.
Investors should know that Marvell makes semiconductors for a wide range of markets, such as consumer electronics and wireless carriers, and this is causing mixed financial results. Marvell's total revenue actually fell 5% year over year in Q2, but as these weak markets recover, revenue will rebound.
By the time Marvell's business is firing on all cylinders, the stock will be trading much higher. Management said its enterprise networking and carrier markets are starting to recover, which means next year could be the turning point for the business. Marvell's trailing-12-month revenue was $5.3 billion through fiscal Q2, but analysts expect it to increase to over $9 billion by fiscal 2027 (which ends in January).
Marvell shares are more difficult to value than Dell, considering Marvell's inconsistent earnings history, but analysts anticipate earnings to grow at an annualized rate of 23% over the next several years. The stock currently trades at a forward P/E of 37 on next year's estimate, which is consistent with the last three years. Investors should expect the stock to outperform the S&P 500 index, which has historically delivered a 10% annualized return, in 2025 and beyond.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends Marvell Technology. The Motley Fool has a disclosure policy.
