HomeBusinessArtificial Intelligence (AI) Stocks Are Skyrocketing. Here Are 2 Bargains

Artificial Intelligence (AI) Stocks Are Skyrocketing. Here Are 2 Bargains

Many stocks in the artificial intelligence (AI) sector are skyrocketing these days. 7 of the 10 best-performing tech stocks of the past 5 years have direct ties to the AI ​​boom, either by making specialized AI hardware or by supplying the equipment used in making those AI chips and systems. S&P 500 (SNP INDEX: ^GSPC) market index has nearly doubled over the past five years, while the slowest-growing AI stock under this lens has risen 708% in that period.

But the rising tide of AI isn’t lifting every digital boat. A few top AI stocks have been left behind, giving savvy investors a chance to grab some promising AI stocks at rock-bottom prices.

In that context, I would like to show you two AI stocks that are trading at a bargain price today. I am sure their names ring a bell. Say hello to my recommendations: systems builder Dell (NYSE: DELL) and technology veteran IBM (NYSE: IBM).

Dell: An underrated gem in the AI ​​hardware market

There are many computer system builders, 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, Supermicrocomputer (NASDAQ: SMCI) has seen its share price rise 500% in two years.

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But I’m not here to recommend Supermicro. That stock seems affordable enough in many ways, but the company is burning cash and has recently been accused of poor accounting practices. It’s usually easy to dismiss accusatory short-seller reports like this one, but Supermicro added fuel to the fire by delaying the filing of its 10-K form on the same day.

Plus, Supermicro’s stock price has skyrocketed in the AI ​​boom and a price correction was probably due anyway. I’m happy to stay on the sidelines for that stock right now.

But fellow systems maker Dell is a different story. Dell’s shares have risen just 133% since the summer of 2022, well behind Supermicro’s big jump. The stock trades on affordable valuation multiples like 0.9 times trailing-12-month revenue and 15 times free cash flow. More importantly, Dell generates robust cash earnings, and no one thinks its accountants are fudging the books.

Additionally, Dell more than doubled its AI systems revenue from the fourth quarter of fiscal 2024 to the first quarter of 2025. The company has a backlog of AI orders worth $3.8 billion, equivalent to about two full quarters of systems orders. And the backlog is still growing.

So Dell offers a low-priced stock with huge growth potential in the AI ​​boom. And these stocks look poised to soar. Dell shares are trading 38% below their 52-week highs, even as earnings surge. Consider a Dell position now, or forever hold your tongue when it comes to low-priced AI hardware stocks.

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IBM: The overlooked AI giant for enterprises

Big Blue has an impeccable reputation in AI circles. The company has been deep in AI research since the 1990s, consistently tops the annual list of global AI patent applications, and offers a unique portfolio of enterprise AI tools. The company’s long and painful transformation from a leading one-stop shop for enterprise computing needs to a hyper-focused expert in hybrid cloud software and services is paying off in a big way.

Yet many investors are not taking IBM’s AI skills seriously. The company looks slow and pale next to OpenAI’s flashy and often consumer-focused AI products, Meta platformsand others. Even enterprise software giants like Microsoft And Alphabet are targeting their generative AI tools at the average computer and smartphone user, taking operational risks that IBM would never consider, as the target audience is typically multi-billion dollar companies with strict security and data quality requirements.

Stop me if you’ve heard this before, but those big clients typically go through long, complicated approval processes before choosing a new technology platform. But once they’ve completed their software quality testing and management approvals, the resulting contract is typically long-term, lucrative, and firmly locked in. So IBM may have looked a little slow at the start of AI, but the company is building a rock-solid deal pipeline that should deliver breakthrough financial results over the long term.

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Meanwhile, IBM stock is up just 52% in two years and trades at 14 times free cash flow. I can’t wait to see the initial wave of AI orders turn into a torrential downpour. That might take a while, but that’s OK — the delay just 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 Skyrocketing. Here Are 2 Bargains. was originally published by The Motley Fool

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