Big tech companies are investing heavily in artificial intelligence (AI) to gain an early-mover advantage in a rapidly expanding addressable market. In this article, I evaluate two tech stocks, Dell (NYSE: DELL) and Nvidia (NASDAQ: NVDA), that are part of the AI megatrend to see which is a better buy right now.
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Nvidia is driving the AI race
Nvidia is the largest company in the world, valued at US$3.35 trillion by market cap. It is a leader in AI hardware, as its graphics processing units, or GPUs, are used to train AI models such as ChatGPT.
These GPUs are optimized for deep learning tasks, which makes them essential for data centres looking to implement AI solutions. Its new-age chips enable faster computation and efficient processing of complex algorithms, allowing Nvidia to lead this chip market with a share of over 80%.
Notably, the tech giant has created a robust software ecosystem. For instance, the Nvidia AI Enterprise is a software platform that provides tools to build and deploy AI applications effectively. These integrations allow companies to leverage Nvidia’s technologies and accelerate AI initiatives easily.
Dell is a key hardware player
Dell has made giant strides in establishing itself as a critical player in the AI infrastructure market. It recently launched the Dell AI Factory to simplify and enhance enterprise AI adoption. In fact, the Dell AI Factory has partnered with Nvidia to offer AI technologies for model training and deployment.
Dell is one of the largest companies in the AI infrastructure market, given its offerings help configure diverse AI workloads. In the last few quarters, Dell has noted a significant increase in AI server sales due to growing demand across multiple sectors.
Dell competes with other companies, such as Super Micro Computer and HPE, in the AI server market. The ongoing regulatory issues surrounding Super Micro should help Dell leverage its position as a market leader and benefit from incremental sales in the near term.
Is Dell stock cheaper than Nvidia?
Nvidia is among the hottest stocks on the planet, surging over 2,000% in the last five years. Dell’s shares have also outpaced the broader markets, surging by over 450% since November 2019. However, the growth story for both these tech stocks is far from over.
Analysts tracking Nvidia expect it to grow sales from US$60.9 billion in fiscal 2024 (ended in January) to US$129.1 billion in fiscal 2025 and US$194.2 billion in 2026. Comparatively, adjusted earnings are forecast to expand from US$1.29 per share in fiscal 2024 to US$2.95 per share in 2025 and US$4.41 per share in 2026. So, priced at 31.1 times forward earnings, Nvidia stock trades at a premium.
Comparatively, Wall Street expects Dell’s sales to rise from US$88.4 billion in fiscal 2024 to US$96.2 billion in 2025 and US$105.8 billion in 2026. Its earnings are projected to grow from US$7.13 in 2024 to US$9.44 in 2026. So, priced at 14.8 times forward earnings, DELL stock trades at a lower multiple than Nvidia.
The Foolish takeaway
Both Nvidia and Dell remain crucial to the AI market. While Dell trades at a lower multiple, it is positioned to grow adjusted earnings faster than its peers. Comparatively, Nvidia remains at the epicentre of this megatrend and benefits from pricing power due to a robust product portfolio and an expanding ecosystem.
