2 Top Artificial Intelligence (AI) Stocks to Buy Before 2025

Spending on artificial intelligence (AI) infrastructure was robust in 2024, evident from the tremendous demand for data center chips and server solutions, which drove impressive revenue and earnings growth for several companies.

The good news for companies benefiting from the AI ​​boom is that infrastructure spending in this area will continue to grow well into 2025. According to Barclayshyperscale cloud companies are on track to increase their capital spending for 2024 by 41%, followed by an expected increase of 15% next year. However, the investment bank added that capex growth next year could be much higher than 15%, due to higher spending on graphics processing units (GPUs) and custom AI chips that are being implemented in AI servers.

Additionally, market research firm Dell’Oro Group estimates that data center infrastructure spending is on track to grow at a compound annual growth rate (CAGR) of 24% through 2028.

All of this explains why investors would do well to buy shares of Broadcom (AVGO 2.76%) and Dell Technologies (DELL 4.11%)two companies that are direct beneficiaries of increased AI-focused data center spending.

Let’s look at the reasons why buying these two names right now could prove to be a profitable move for 2025 and beyond.

1. Broadcom

Broadcom makes application-specific integrated circuits (ASICs), which are custom chips designed to perform specific tasks. While GPUs are currently deployed in large numbers to train large language models (LLMs) due to their massive parallel computing power, McKinsey predicts that ASICs will be used to perform most AI workloads by 2030.

This is not surprising, as ASICs are purpose-built chips that are more energy efficient compared to general-purpose computing chips such as GPUs. And because they are designed to perform specific tasks, ASICs have a speed and performance advantage over general-purpose chips. This explains why JPMorgan estimates that the ASIC market, which is currently worth between $20 and $30 billion, could grow at an annual rate of more than 20% in the long term.

JPMorgan adds that Broadcom is the dominant player in ASICs, with an estimated 55% to 60% market share. The company is set to generate $12 billion in revenue this fiscal year from sales of custom AI accelerators and Ethernet networking chips implemented in AI servers. That would nearly triple the $4.2 billion revenue Broadcom generated from selling AI chips last year.

The company expects to end the current 2024 fiscal year (which ends in early November) with $51.5 billion, meaning AI will account for 23% of the top line. That would be a nice improvement over last year, when AI accounted for 14% of its revenue.

Broadcom’s AI revenue is growing at a much faster rate than the market for custom AI chips, as JPMorgan said earlier. This is because Broadcom’s network chips are also witnessing healthy demand. The company’s network revenue rose 43% year over year in the previous quarter.

Broadcom management said on its September earnings conference call that Ethernet switch sales were up 4x from a year ago due to demand from hyperscale customers. Investors should note that the data center switching market is getting a good boost from AI, with Dell’Oro predicting it could double in size over the next five years and generate $80 billion in annual revenue.

As such, Broadcom looks capable of maintaining an impressive growth rate over the long term. Analysts expect the company’s bottom line to grow at an annual rate of 20% over the next five years. However, lately they have raised their expectations.

AVGO EPS estimates for current fiscal year data by YCharts

So there’s a chance that Broadcom’s earnings growth will beat Wall Street’s expectations going forward, which is why investors would be wise to buy this AI stock before it surges after an impressive 60% gain in 2024.

2. Dell Technologies

Dell is another company that has seen an improvement in its growth due to increased spending on AI infrastructure. More specifically, rising demand for AI servers has been a tailwind for Dell, leading to impressive growth in the company’s Infrastructure Solutions Group (ISG), through which it sells server and storage products.

The company’s revenue in the second quarter of fiscal 2025 (which ended Aug. 2) rose 9% year over year to $25 billion. However, the company’s ISG business grew at a much faster rate of 38% and generated record revenue of $11.6 billion. In the ISG business, Dell said its servers and networking products saw a tremendous year-over-year growth of 80 percent to $7.7 billion.

The company shipped $3.1 billion worth of AI servers last quarter and received $3.2 billion worth of new orders from cloud service providers (CSPs). More importantly, Dell said that “its AI server pipeline expanded to both Tier 2 CSPs and Enterprise customers again in Q2 and now has grown to several multiples of our stock.”

This is not surprising as the AI ​​server market is witnessing remarkable growth. This market could register an annual revenue growth of 18% by 2032, generating an annual revenue of USD 183 billion at the end of the forecast period. Unsurprisingly, Dell said it’s at the beginning of the AI ​​opportunity, which is why there’s a solid chance that robust growth in its ISG business will start to move the needle in a more meaningful way for the company going forward.

Dell’s forecast for fiscal 2025 revenue of $97 billion would be a 10% improvement over the previous year. In comparison, the company’s revenue is down 14% in fiscal 2024. So, AI has already started to drive an improvement in Dell’s fortunes, and this trend is expected to continue in the future due to the additional opportunity related to AI in the form of staff . computer (PC) market.

All of this explains why Dell’s earnings are expected to grow at an annual rate of nearly 11% over the next five years. That would be a significant improvement over the 1.5% annual earnings erosion the company has witnessed over the past five years.

Finally, Dell’s forward earnings multiple of just 15 makes buying the stock a problem right now, as it represents a discount to Nasdaq-100 index forward earnings multiple of 29 (using the index as a proxy for technology stocks). Dell shares have posted an impressive 55% gain in 2024 and have the potential to fly higher thanks to the AI-driven business recovery.