Despite two consecutive years of 20%-plus gains for the S&P 500(SNPINDEX: ^GSPC), less than 30% of all stocks actually beat the index in both 2023 and 2024 -- a record-low percentage for the past 30 years.
That leaves plenty of room for cheaper stocks to "catch up" to last year's winners, which were largely concentrated in artificial intelligence (AI) darlings. Despite the following stocks riding technology-based tailwinds, each still looks too cheap today.
1. Dell Technologies
Dell Technologies(NYSE: DELL) actually had a fine 2024, up 50.6%, but the stock's valuation still doesn't look demanding, at 19 times trailing earnings and just 12 times forward earnings estimates.
Dell is a leader in enterprise servers, after having bought EMC back in 2016. And while AI-powered servers are admittedly low-margin, there is also still a ton of room for growth. According to Synergy Research Group, data center infrastructure surged 34% in 2024 to $282 billion, but is set to more than triple by 2030.
Moreover, if AI spending transitions from cloud-based training to more on-premises inference at enterprises, Dell could outperform materially. That's because Dell retained the No. 1 enterprise server position last year, according to Synergy.
While Dell's valuation may be held back somewhat by the struggling PC segment, its data center segment now makes up about 70% of the company's total profits. But even the lagging PC segment could turn around in 2025. PCs have been mired in a three-year downturn, and Windows 10 support will end in October of this year. Combined with new innovation in AI-enabled PCs, there could also be a big enterprise PC refresh in 2025.
Therefore, Dell may fire on all cylinders in 2025. Down nearly 40% from last year's all-time highs, shares look cheap today.
2. ASML Holdings
So ASML Holdings(NASDAQ: ASML) isn't "cheap" by conventional metrics, at over 40 times earnings and 32 times 2025 earnings estimates. However, that valuation is actually below average for ASML, given its history, and the stock is still down over 30% from last year's highs.
ASML typically trades at a high valuation due to its monopoly on extreme ultraviolet lithography (EUV) technology. This technology facilities the manufacturing of leading-edge semiconductors that power artificial intelligence and all leading technology applications today.
Shares sold off recently as analysts predict lower deep ultraviolet (DUV) machine sales, which is a less-advanced technology, to China next year. This is due to newer trade restrictions, as well as China having pulled forward orders last year in anticipation of those restrictions.
Despite potential headwinds in DUV, ASML's EUV machines are higher-revenue and higher-margin, and should see massive demand ahead if projections for AI chip growth turn out to be accurate. Moreover, ASML just began shipping its new high-NA version of EUV just last year, and high-NA EUV costs about double that of prior low-NA EUV machines. By the 2030s, the next version of EUV, called "hyper-NA," should fuel another leg of growth.
While the downturn in Chinese DUV demand this year is a hiccup, the long-term growth of semiconductors and their strategic importance in the AI era means ASML is a solid buy on this pullback. The stock may be as cheap as it's going to get for a while.
Image source: Getty Images.
3. On Semiconductor
The PC market isn't the only chip market in a downturn right now. Industrial chips and auto chips are actually mired in an even more severe downturn, which started in 2023. However, given that the downturn in these segments is approaching the two-year mark, now may be a time to look at beaten-up leaders in this area.
On Semiconductor(NASDAQ: ON) is among the highest-quality of the auto and industrial chipmakers. CEO Hassane El-Khoury was installed by an activist investor in late 2020, and has transformed the company, shedding several of On's manufacturing fabs and exiting low-margin consumer businesses, while focusing on next-generation power and analog semiconductors.
Power and analog chips should see long-term growth in auto and industrial applications as both vehicles and infrastructure become more and more electrified and automated in the years ahead. However, these industries are in a down cycle right now, with On's revenue declining an ugly 19% last quarter. Moreover, the incoming Trump administration could roll back some electric vehicle subsidies and regulations, perhaps slowing the adoption of electric vehicles further.
Despite the downturn, On is still profitable, generating over $400 million in net income last quarter. That enabled the company to repurchase stock at its current low valuation of 14 times earnings, while also maintaining a healthy $2.78 billion in cash on the balance sheet.
Electrification should still progress, even if that path may be slower under a Trump administration. But at just 14 times earnings, with little net debt, and with those earnings already reflecting a down market, On looks like a contrarian buy at these levels.
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Billy Dubersteinand/or his clients has positions in ASML and ON Semiconductor. The Motley Fool has positions in and recommends ASML. The Motley Fool recommends ON Semiconductor. The Motley Fool has a disclosure policy.
