2 Growth Stocks Down Over 35% to Buy Right Now

John Ballard, The Motley Fool

Sun, Jan 26, 2025, 2:15 AM 5 min read

Artificial intelligence (AI) continues to be a promising market to look for long-term winners. Dell Technologies (NYSE: DELL) and C3.ai (NYSE: AI) are seeing growing demand for their AI products, but their share prices are currently trading at discounts to their 52-week high. Here's why these stocks are timely buys right now.

1. Dell Technologies

After reaching a 52-week high of $179.70 last year, shares of Dell Technologies currently trade around $112. Dell is a great stock to buy to benefit from growing demand for AI servers. About half of its revenue comes from PCs and related products, but the other half comes from infrastructure products, including servers, where Dell is one of the leading suppliers.

Dell's third-quarter revenue grew 10% year over year, which was mostly driven by demand for AI products. Servers and networking revenue specifically jumped 58% over the year-ago quarter, and the demand for these products is expanding Dell's addressable market.

CEO Michael Dell said the AI opportunity is "very significant" and compared it to the emergence of the internet more than 30 years ago. The 1990s was a phenomenal decade of growth for Dell's PC business that delivered wealth-building gains for early investors in the company. The investment in AI servers could deliver a similar level of growth for Dell's infrastructure business. Statista forecasts the AI server market will surpass $200 billion by 2029.

Dell could also see growing revenue on the consumer side as more AI-optimized PCs hit the market. Once the company is seeing strong growth from servers and PC products, the stock will likely be trading at a higher share price, which is why now is the right time to consider buying shares.

Analysts expect Dell's earnings to grow at an annualized rate of 13% in the coming years. Against those estimates, Dell stock looks undervalued, trading at a forward price-to-earnings ratio of 14 and also paying a dividend yield of 1.53%.

2. C3.ai

On the software side, C3.ai is one of the leading vendors for enterprise AI applications. This is an exploding market, driving accelerating revenue growth for the company. After rocketing to a new high of $45.08 toward the end of 2024, the shares could be a great buy on the dip, currently trading around $33.18.

C3.ai's AI products are helping organizations make faster and more informed decisions, and it's showing up in recent earnings results. In the most recent quarter, revenue grew 29% year over year, driven by expanding agreements with U.S. government agencies, including the Department of Defense, and several large companies. It was the sixth consecutive quarter of accelerating growth.

The stock hasn't performed as well as rival Palantir Technologies, which is a larger and more profitable business. Unlike its competitor, C3.ai is not generating a profit yet. Losses on the bottom line certainly raise C3's risk profile, but that's also allowing investors to buy the stock at a significantly lower valuation that could set up explosive returns once the company is turning a healthy profit. While investors are paying 66 times trailing revenue to buy shares of Palantir, C3.ai trades at a price-to-sales multiple of 12.

C3.ai should see improving margins as it continues to grow revenue and achieves greater scale, but the bigger concern for Wall Street in 2025 appears to be the company's dependency on Baker Hughes, which represented 18% of C3.ai's revenue last quarter. The Baker Hughes agreement is scheduled to expire later in June, so analysts are concerned about the potential loss of a major chunk of revenue in the near term.

However, revenue excluding Baker Hughes grew 41% year over year in fiscal Q2. Moreover, the energy tech company makes up significantly less of C3's revenue than a few years ago, as the customer base grows. As more investors recognize C3.ai's growing customer base across multiple industries, the stock should benefit.

Continued revenue growth is the main catalyst that could send the stock soaring over the next few years. The accelerating growth over the last year is a great indicator of where the company is headed, so buying at least a small position in C3.ai stock for the long term is worth it right now.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.

2 Growth Stocks Down Over 35% to Buy Right Now was originally published by The Motley Fool

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