Artificial intelligence (AI) has been the hottest trend on the market for the past couple of years, and it shows no signs of letting up. Unlike other trends that have stormed the markets in recent years, AI, specifically generative AI, has unlocked incredible value for users, both techies and laypeople.
Chipmaker Nvidia has gotten much of the attention -- and stock gains to match. But other players are also reaping the benefits and have tons of potential. Consider Dell Technologies (NYSE: DELL) and Amazon(NASDAQ: AMZN). Which is the better AI stock to buy today?
This legacy tech company will benefit from a rival's missteps
Keith Noonan: Dell has been posting strong growth thanks to big gains in the AI server market. While overall revenue rose 9% to $25 billion in its last reported quarter, revenue for its infrastructure solutions segment increased 38% to $11.6 billion. Within the segment, servers and networking revenue grew 80% to $7.7 billion. There's likely plenty of growth still to come in the product category.
In addition to its own competitive strengths, Dell is poised to benefit from the missteps of one of its biggest competitors. Super Micro Computer (also known as Supermicro) had been the hottest player in the high-performance server market, but the company has suffered some seemingly self-inflicted setbacks.
Last month, Supermicro's auditor stepped down and said it could no longer deal with the company because it couldn't rely on management's representations or the company's financial statements. Supermicro had already delayed filing its annual 10-K report with the Securities and Exchange Commission (SEC) before its auditor resigned, and it subsequently delayed the filing of its 10-Q report for the first quarter of its current fiscal year.
Supermicro's accounting issues have had a major impact on the company's reputation and played a big role in tanking its stock. Its share price is down more than 60% during the past month alone. The stumbles also seem likely to have a significant impact on the server specialist's business performance and competitive positioning.
In response to the controversy and uncertainty, reports emerged that Nvidia had begun diverting orders that would have gone to Super Micro Computer to other companies. Nvidia's graphics processing units (GPUs) were the key hardware in Supermicro's most advanced servers. Even more striking, Supermicro recently ranked as Nvidia's third-largest customer.
Dell now looks poised to pick up significant market share from Supermicro in the high-performance server market and could be poised to emerge as the market leader. With dynamics shifting in the AI server niche, the stock looks like a smart play right now.
This cloud giant also makes hardware
Jennifer Saibil: Amazon is best known for its unbeatable e-commerce business and lesser known for its cloud computing segment, Amazon Web Services, even though this business is tops in that market.
However, it's willing to go wherever it sees an opportunity to create a dominant business. That includes making hardware, and it's become the go-to place for connected devices, like its Alexa digital assistant, Echo smart speakers, and Kindle e-readers. It's bringing that convergence of digital solutions, AI, and hardware to develop a major AI business focused on AWS and generative AI.
Amazon works with Nvidia's GPUs to offer the most competitive generative AI services for AWS clients, what it calls its bottom layer (out of three) of AI services. These are for developers coding from scratch and creating their own large language models (LLMS), which are the foundation of generative AI.
The middle tier is for coders who need semi-custom options and can rely on Amazon's LLMs, and the top tier is for smaller businesses that are looking for budget options that still provide excellent results. Taking feedback from its huge client base, Amazon decided to make its own chips for price-conscious clients while still working with Nvidia for other client needs.
In the third-quarter earnings report, Chief Executive Officer Andy Jassy said that the AI business already has a multibillion-dollar annual run rate but that this was only the beginning. Not only does its AI business support coding for programmers, but it can also create full marketing campaigns, including print, video, and audio, from prompts and images.
The excitement and opportunities generative AI provides are also leading to an uptick in the overall cloud business. Clients have been curtailing spending as inflation ballooned, but they see that they can't participate in the generative AI revolution without being on the cloud. Companies are switching over to AWS services, and AWS revenue in the third quarter rose 19% year over year.
Amazon is a leading player in so many areas where AI will have a big role, and it's an excellent time to invest in this no-brainer stock.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
