Investing in the future of artificial intelligence (AI) is about more than just pursuing high-momentum semiconductor stocks, mega-cap tech, or the Magnificent Seven. It’s impossible to tell where stocks go from here, with a booming first half of the year officially coming to a close. However, investors looking to put their “value hats” back on should give the names not atop Wall Street’s watchlist just a bit more love. Some stocks, like Dell Technologies (NYSE:DELL) and Autodesk (NASDAQ:ADSK), are well-positioned tech firms with lots to gain from the AI race.
At this juncture, the market may still be warming up to the names outside the top 10 holdings in the S&P 500 (SPX) or Nasdaq 100 (NDX). Given AI catalysts ahead and the modest valuations, perhaps DELL and ADSK shares are the type of AI stock picks investors should give more attention to as we wander into a potentially rockier second half of the year. Broadening one’s horizons may allow investors to have their cake and eat it, too (relative value and AI upside).
Dell Technologies stock has rocketed 82% year-to-date. The name is now widely recognized as an AI play, with AI server orders recently growing 40% sequentially as the order backlog swelled to nearly $3 billion. Still, at 17.9 times forward price-to-earnings, a discount to Magnificent Seven stocks, Dell stock still seems highly underrated, especially as more focus shifts from AI chip makers to data center suppliers.
Moving into the second half of the year, demand for AI-optimized servers could stay scorching hot as enterprises look to sprint rather than jog in this second year of the AI race, one that could last many years. Dell seems to be doing a fantastic job of teaming with top innovators in the space, including some Magnificent Seven members and Elon Musk’s AI firm xAI. Such partnerships bolster Dell’s growth strategy as the firm looks to match or even top its outstanding first-half performance.
Additionally, as part of its AI strategy, Dell’s newly launched end-to-end enterprise solution named AI Factory may help act as a timely needle mover on the stock. I don’t think the initiative is fully baked into shares quite yet. Either way, Dell is a serious contender that could eclipse the $100 billion market cap mark again in the coming months.
BofA analyst Wasmi Mohan, a man who has a $180 price target on the stock, is “confident in the multiyear opportunity related to AI” after having the opportunity to meet with CEO Michael Dell himself.
What Is the Price Target of DELL Stock?
DELL stock is a Strong Buy, according to analysts, with 11 Buys and one Holds assigned in the past three months. The average DELL stock price target of $157.15 implies 14% upside potential.
Autodesk (NASDAQ:ADSK)
Shares of computer-aided design software developer Autodesk have been in recovery mode after shedding over 24% from peak to trough earlier this year, thanks partly to a delayed quarterly result over an internal investigation into the firm’s accounting. Indeed, such concerns are enough to have any investor selling first and asking questions later. As it turned out, the resulting dip from the April swoon was a great buying opportunity. Such concerns were quickly resolved, and the quarter was released without any sort of adjustments.
More recently, activist hedge fund Starboard Value, which has a $500 million stake (around 1% of the company) in ADSK stock, brought the fight to AutoDesk’s board. Starboard alleged that management intentionally misled investors, and the firm is looking to shake things up. With a big-name activist pushing for positive change and a solid first-quarter result in the books, I’d argue that ADSK stock presents incredible value for investors seeking AI exposure.
Activist involvement, prior accounting question marks, and all other sorts seem mostly like a distraction from the longer-term AI opportunity at hand. The company’s Forma solution is a profound innovation that could iron out many of the complexities of the architecture, engineering, and construction (AEC) business.
Indeed, AEC is full of constraints, restrictions, and other complications that are easily overlooked. Products like Forma and its text-to-3d model Project Bernini stand out as having the profound potential to get new and existing users to pay a bit more.
As Autodesk bets big on AI to streamline designs, I consider ADSK to be on the brink of an AI-induced growth jolt. Still down significantly from its all-time high, ADSK stock stands out as a hidden gem for investors looking to play AI from the software side.
At 30.1 times forward P/E, ADSK may seem fully valued, but it may not be if Autodesk can get generative AI right. Early signs suggest they are as the AEC software leader looks to widen its moat.
What Is the Price Target of ADSK Stock?
ADSK stock is a Moderate Buy, according to analysts, with 10 Buys, nine Holds, and one Sell assigned in the past three months. The average ADSK stock price target of $264.00 implies 6.7% upside potential.
The Takeaway
As we wander into the second half of the year, the strength in mega-caps could certainly broaden to some of the less-appreciated large (and maybe mid) caps. At the same time, mega-cap tech could continue to rally unchecked, even without much help from the rest of the sector, and, of course, a bearish descent for the tech darlings can’t be ruled out.
In any case, the case for buying under-the-radar AI beneficiaries couldn’t be stronger. As benefits trickle from chip plays to industry-specific software and server companies like Autodesk and Dell, perhaps it’s wise to look beyond the market’s top 10 for a change.
