Undervalued and Ignored: 2 Artificial Intelligence (AI) Stocks With Market-Beating Potential

Core Insights - The article highlights the presence of undervalued fast-growing companies in the AI market, particularly those involved in AI infrastructure like data centers, despite high valuations in chips and software sectors [1][2]. Company Analysis: Applied Digital - Applied Digital's stock has surged 132% in the last three months, driven by an $11 billion AI infrastructure deal with CoreWeave, validating its strategy in building data centers for AI workloads [4][6]. - The company has secured power for its facilities, which is increasingly valuable as demand for AI accelerates, with some analysts predicting a power shortage in the next five years [5]. - Applied Digital has reduced the build time for new data centers from two years to about one year, allowing for rapid scaling to meet demand [6]. - The company reported a 41% year-over-year revenue growth in the most recent quarter, despite a net loss of $26 million, with a target of $1 billion in operating profit within five years [6][8]. - Applied Digital is in advanced talks for another major deal, which could further enhance its profit potential [7][8]. - The current market cap of Applied Digital is $6.2 billion, valuing the stock at just 6 times the long-term operating profit target, indicating potential for the stock to double in the coming years [8]. Company Analysis: Dell Technologies - Dell Technologies is experiencing strong demand for AI servers, which constitute a significant portion of its revenue, yet the stock trades at less than 15 times forward earnings estimates [9][10]. - In Q2, Dell reported a record revenue of nearly $30 billion, with a 19% year-over-year increase, and over $16 billion from its infrastructure solutions segment [10]. - As a leading supplier of servers, Dell is well-positioned to benefit from the growing demand for AI infrastructure, offering AI-optimized server racks and advanced cooling technologies [11]. - Dell maintains a strong relationship with Nvidia, allowing it to quickly deliver cutting-edge solutions to customers [11]. - The company’s five-quarter pipeline continues to grow, driven by enterprise and government market demand, with a long-term addressable market in AI hardware and services projected at $356 billion by 2028 [12]. - Analysts expect Dell's earnings to reach $12.34 in 2028, suggesting that if valued as a growth stock at 20 times those estimates, the share price could reach $246 in three years, nearly doubling from its recent price of $133 [13].