These 2 Stocks Are Leading the Data Center Artificial Intelligence (AI) Trend, but Are They Buys Right Now?

Data centers are among the most significant trends in artificial intelligence (AI). In the coming years, major tech companies will spend trillions erecting them in the U.S. and internationally. New massive projects are announced so often that it’s tough to keep up, but I’ll try. Here are some notable recent announcements:

• OpenAI, the creator of ChatGPT, announced The Stargate Project last month. The company and its partners plan to spend $500 billion (yup, billion with a “b”) over the next four years. Notably, Arm Holdings and Nvidia (NVDA 0.90%) will be “key technology partners,” according to OpenAI.
• xAI, founded by Elon Musk, built “Colossus” in Memphis, which houses 100,000 Nvidia GPUs. Musk stated plans to expand to 200,000 GPUs, and there are reports that it could one day utilize a million of them.
• Amazon plans to spend $150 billion on data centers in the coming years, including another $10 billion expanding its facilities in Ohio. At the same time, Alphabet and Meta also have multibillion-dollar ventures planned and underway.

Statista expects the data center market to rise rapidly, surpassing $600 billion before the end of this decade:

Here are two companies deeply involved in the industry that look like buys now.

Nvidia

Nvidia’s fiscal 2024 was an absolute revelation. Revenue grew 126% to $61 billion on the back of incredible data center numbers. Data center sales exploded by 217% to $48 billion. As tremendous as this was, it pales compared to fiscal 2025, which ended Jan. 31. Revenue totaled $91 billion, with $80 billion from data centers, and only three quarters have been reported. Another $37.5 billion is expected in the fourth quarter of fiscal 2025, bringing total sales to $128 billion — more than double fiscal 2024. The growth is astounding.

Nvidia’s high-powered graphic processing units (GPUs) are essential for AI data centers. The demand is so high that Nvidia cannot build them fast enough. Recently, there was a report that Chinese company DeepSeek built a generative AI model that rivals ChatGPT with only a couple thousand GPUs and just a few million dollars. This news sent shockwaves through the industry as investors contemplated whether this meant that big tech companies would need far fewer Nvidia chips.

However, investors shouldn’t abandon Nvidia over DeepSeek. Many industry experts believe DeepSeek exaggerated its claims and may actually have 50,000 Nvidia GPUs and spent $1.6 billion on them. The above mentioned shock sent the stock diving; this is an opportunity for long-term investors to purchase Nvidia for a reasonable valuation:

NVDA PE Ratio (Forward) data by YCharts

As you can see above, the forward price-to-earnings (P/E) ratio of 26 is well under the historical average. Nvidia investors who took advantage of the drops you see above in early 2023 and 2024 were also rewarded. The DeepSeek news is interesting; however, Nvidia will still almost certainly dominate the AI industry for years to come.

Dell

GPUs aren’t the only hardware that populates these massive data centers. They also need infrastructure like racks, servers, liquid cooling technology, switches, etc., and Dell is one of the world’s largest suppliers. Dell (DELL 0.43%) has two reporting segments: its Infrastructure Solutions Group (ISG), which supplies data centers, and a Client Solutions Group (CSG), which supplies computers, laptops, and related components to businesses and consumers.

The ISG segment grew 34% last quarter (Q3 of its fiscal 2025) to $11.4 billion. Servers and networking led the way, increasing sales by 58% to $7.4 billion. Operating income also rose 41% to $1.5 billion in the segment. Notably, ISG revenue accounted for 47% of Dell’s total revenue in the quarter vs. 38% in the same quarter last year. The company’s data center business will soon be its dominant segment.

One downside to Dell is that CSG is not experiencing the same success, primarily because of lagging consumer sales. Total CSG sales last quarter fell 1% to $12.1 billion, with consumer sales down 18% to $2 billion. Turning around the consumer business will take time. Dell hopes AI will drive an upgrade cycle, but that remains to be seen. Still, this segment is profitable, so it isn’t a drag on the bottom line.

Dell pays a rising dividend yielding just under 2%, with plans to raise it 10% or more through fiscal 2028. The company also plans to return 80% of its free cash flow to shareholders via dividends and stock buybacks. Free cash flow, which was $5.6 billion in fiscal 2024, should spike moving forward, driven by data center demand.

Analysts are bullish on Dell, with 20 of 24 giving the stock a buy or strong buy rating and an average price target of $151 or nearly 50% above the price as of this writing. Dell’s position as one of the leading infrastructure suppliers to massive data center projects makes it a compelling stock in the AI arena.