Wall Street has soured on most AI and data center stocks in the past week. The latter category has been hit especially hard after Microsoft (NASDAQ:MSFT) canceled some of its data center leases.
It’s not that surprising, considering data center stocks managed to hold most of their gains despite DeepSeek mainly because Microsoft (and most other Big Tech companies) appeared to double down on AI and continue building out data center infrastructure. If Microsoft is getting cold feet about AI, the market has little reason to be optimistic.
All that said, you still shouldn’t dump data center stocks across the board. Not all data center companies are bad bets. Some are trading at very cheap prices and have room to deliver a lot more upside after they’ve been knocked down. If the AI rally picks back up, I believe the three stocks listed below stand to be among the top beneficiaries.
Dell Technologies (NYSE:DELL) successfully changed its reputation from being a laptop company to one that is heavily involved in the AI industry. The company’s AI server backlog is now at $9 billion and Dell is now the number one provider of commercial AI PCs. These PCs have built-in NPU tech specifically for AI, and that may come in very handy since DeepSeek has sparked a trend toward locally hosted AI models.
It also stands to benefit from ChatGPT-like AI models on the cloud. It has shipped $2.9 billion worth of AI servers and built a $4.1 billion AI server backlog.
The stock hasn’t kept up with those trends and is down about 33% from its peak in May 2024. After Q4 FY2025 earnings, the stock declined by over 6.77% as revenue of $23.93 billion missed estimates by $638.66 million. EPS of $2.68 beat estimates by $0.16. It would’ve likely declined more if it wasn’t for the strong projection of $15 billion in AI server shipments this year. Full-year EPS is guided at $3.6 a share vs. the $3.57 consensus.
Despite the miss, DELL is a dip worth buying. You’re paying 11.6 times forward earnings for this business, and EPS is expected to grow at around 14-15% for the next three years. You’re also getting a 1.65% dividend yield on top of that.
Now there’s a reason it’s that cheap. Debt is at over $25 billion compared to $5.2 billion in cash. However, Dell can easily service that debt and it’s going to be much less consequential when valuing the stock once rates inevitably come down.
The consensus price target of $145 implies 34.72% upside.
The sentiment seems to be changing on Super Micro Computer (NASDAQ:SMCI) every other day this past week. The stock surged over 27% after it filed its 10-K and 10-Q, but all those gains were wiped away (and then some) since Nvidia (NASDAQ:NVDA) didn’t beat earnings by a stellar margin and two company officers laid out their plans to sell less than $6 million worth of SMCI shares. The stock tumbled nearly 16% on February 27.
SMCI is going to have to deal with export controls and a general slowdown in the data center industry as the industry matures, but even with that in mind, the stock is worth buying the dip on. Earnings are expected to continue rising in the coming quarters, and even if growth tapers off, it seems unlikely that SMCI will be a long-term disappointment since you’re already paying 19 times earnings for an AI company.
Plus, the bearish sentiment about the company’s books potentially being cooked has effectively dissipated and its Nasdaq listing no longer hangs in the balance.
The consensus price target of $61.27 implies 44% upside.
Hewlett Packard Enterprise (NYSE:HPE) is a big player in the data center business and it isn’t as volatile. This is a good time to buy the dip if you like long-term investments. Its server segment is a major business component and grew 32% year-over-year to $4.7 billion in Q4 2024.
AI server revenue reached $1.5 billion, and AI systems revenue grew 150% to $4.1 billion. It also reported $1.6 billion in hybrid cloud revenue, up 18% from the year-ago quarter.
It’s incredibly cheap for an AI/data center play and trades at just over 9 times forward earnings. It is expected to post around 7.1% EPS growth and 7.9% revenue growth this year, but the cheap multiple alone leaves solid room for upside. It will also be acquiring another data center and networking company called Juniper Networks (NYSE:JNPR).
HPE currently has a 2.58% dividend yield and the consensus price target of $24 implies 21% upside.
