2 Top Artificial Intelligence (AI) Stocks to Buy Right Now

The current bull market on Wall Street shows no signs of slowing down, with leading stocks like Nvidia and Microsoft reaping significant benefits from the surge in artificial intelligence (AI). However, deciding when to invest can be challenging, especially when the market is close to all-time highs. Many investors believe that the bull market will persist due to a favorable business environment and major investments in AI from Big Tech companies. Predictions indicate that these firms will invest around $250 billion in capital expenditures in the upcoming year. Moreover, AI revenue is projected to exceed $820 billion by 2030.

This optimistic outlook does not guarantee that stock prices will keep climbing, as potential risks remain. Before discussing investment strategies in a bull market, let's explore two distinct companies that could yield strong returns in the long term.

Dell's Huge Data Center Opportunity

This year, the total number of hyperscale data centers – those larger than 100,000 square feet – surpassed 1,000. Analysts predict at least 120 new data centers will be established each year going forward. These large facilities, some exceeding one million square feet, require substantial infrastructure like servers. Dell is a leader in this sector. Recently, Dell's Infrastructure Solutions Group achieved record revenue of $11.6 billion, marking a 38% growth, while overall sales rose 9% to $25 billion for the quarter.

Dell identifies its addressable market in AI to be around $124 billion, with a total infrastructure market estimated at $265 billion by 2027. Recent challenges faced by competitor Super Micro Computer, including financial scrutiny and management changes, may lead to further market share for Dell. Consequently, analysts have been adjusting their price targets upward, with Wells Fargo raising its target from $140 to $160 per share, and Morgan Stanley increasing its target from $136 to $154. The current targets suggest a potential for 7% to 11% growth from the present price. Additionally, Dell rewards shareholders through a dividend and share buyback program, having returned $1 billion in the last quarter. They plan to increase dividends by 10% each year at least through fiscal 2028. These factors make Dell an attractive option for long-term investment.

Amazon's Massive Data Processing Opportunity

Transitioning from a company that supplies data centers, we look at Amazon, which is actively building them. For example, construction is underway for Amazon's $11 billion data center in Indiana, essential for enhancing the processing and storage capacity of Amazon Web Services (AWS).

While many still view Amazon primarily as a product-based company, AWS operates as the core driver of Amazon's profitability. Over the past year, AWS contributed to 60% of Amazon's $60.5 billion operating income, showcasing an impressive operating margin of 38%, contrasting sharply with the 5% from its other business segments.

Amazon's operating cash flow has surged significantly, largely benefiting from the success of AWS. Notably, Amazon's stock currently trades below its five-year averages in sales, operating cash flow per share, and earnings—a rare situation in today’s bullish market.

Investing during a bullish period can be tricky. Although it may feel risky to invest at market peaks, it’s essential to avoid trying to time the market. Just because major indices are hitting record highs doesn’t preclude further growth. Here are two strategies to reduce your investment risk.

First, consider dollar-cost averaging, which involves buying shares incrementally over a period. This method allows investors to take advantage of lower prices, minimizing the potential impact of market peaks. Alternatively, consider a “buy-the-dip” approach. The market often goes through corrections (declines of over 10%), although 2024 has yet to witness one—following multiple corrections in 2023, 2022, and 2020. Regardless of the strategy you adopt, Dell and Amazon present excellent opportunities to capitalize on the growing AI market.

Investment, Stocks, AI