Artificial Intelligence (AI) Stocks Are Soaring in Price. Here Are 2 Bargains.
Many stocks in the artificial intelligence (AI) space are skyrocketing nowadays. 7 of the 10 highest-performing tech stocks over the last 5 years have direct ties to the AI boom, either by making specialized AI hardware or by providing the equipment used in making those AI chips and systems. The S&P 500 (SNPINDEX: ^GSPC) market index nearly doubled over the last five years while the slowest-growing AI stock under this lens gained 708% in that period.
But the rising AI tide isn't lifting every digital boat. A couple of top-notch AI stocks have been left behind, giving astute investors the opportunity to grab some promising AI stocks at bargain-bin prices.
On that note, I'd like to show you two AI stocks trading at bargain prices today. I'm sure their names will ring a bell. Say hello to my recommendations: systems builder Dell (NYSE: DELL) and technology veteran IBM (NYSE: IBM).
Dell: an undervalued gem in the AI hardware market
There are many computer system builders out there, but a much shorter list of builders that can deliver truly massive systems. As a leading maker of cost-effective AI training computers with advanced cooling systems, Super Micro Computer (NASDAQ: SMCI) has seen its stock price soar 500% in two years.
But I'm not here to recommend Supermicro. That stock looks affordable enough in many ways, but the company is burning cash and was recently accused of improper accounting practices. It's usually easy to shrug off accusatory short-seller reports like this one, but Supermicro added fuel to the bearish fires by delaying the filing of its 10-K form on the same day.
Besides, Supermicro's stock has skyrocketed in the AI boom and was probably due for a price correction anyhow. I'm happy to stay on the sidelines for that stock right now.
But fellow systems builder Dell is a different story. Dell's stock has only gained 133% since the summer of 2022, far behind Supermicro's soaring jump. The stock trades at affordable valuation ratios such as 0.9 times trailing twelve-month sales and 15 times free cash flow. More to the point, Dell is generating robust cash profits and nobody thinks its accountants are cooking the financial books.
Moreover, Dell more than doubled its AI systems revenues from the fourth quarter of fiscal year 2024 to the first quarter of 2025. The company has a backlog of unfilled AI orders worth $3.8 billion, which is about two full quarters' worth of system orders -- and the backlog is growing.
So Dell offers a low-priced stock with tremendous growth opportunities in the AI surge. And these shares look ready to run. Dell's stock trades 38% below its 52-week highs, even though the business results are picking up steam. Consider a Dell position right now, or forever hold your peace when it comes to low-priced AI hardware stocks.
IBM: the overlooked enterprise AI giant
Big Blue has a flawless pedigree in AI circles. The company has been knee-deep in AI research since the 1990s, leads the annual list of global AI patent applications year in and year out, and provides a unique portfolio of business-class AI tools. The company's long and painful transformation from a leading one-stop shop for corporate computing needs to a tightly focused expert in hybrid cloud software and services is about to pay off in a big way.
Yet, many investors don't take IBM's AI chops seriously. The company looks slow and flat-footed next to the splashy and often consumer-facing AI products from OpenAI, Meta Platforms, and others. Even enterprise software giants like Microsoft and Alphabet are addressing their generative AI tools to the common computer and smartphone user. So they take operating risks IBM would never consider, since its target demographic generally consists of billion-dollar businesses with strict security and data quality requirements.
Stop me if you've heard this before, but those large clients typically go through long and complicated approval processes before settling on any new technology platform. But when they finish their software quality tests and management approvals, the resulting contract tends to be long-term, lucrative, and locked in tight. So IBM may have looked a bit slow out of the AI gate, but the company is building a rock-solid deal portfolio that should drive game-changing financial results in the long run.
Meanwhile, IBM's stock has gained just 52% in two years and trades at 14 times free cash flows. I can't wait to see the early trickle of AI orders evolve into a raging torrent. That could still take a while but that's OK -- the delay only gives me more time to build my IBM position.
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Anders Bylund has positions in International Business Machines. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
Artificial Intelligence (AI) Stocks Are Soaring in Price. Here Are 2 Bargains. was originally published by The Motley Fool