Artificial intelligence (AI) remains a monster opportunity for long-term investors. There are different ways for an investor to ride this wave of innovation, but we’re going to focus on two leaders helping to build the infrastructure for AI. These companies are experiencing growing demand for their services and could see their share prices double in three years.
1. Applied Digital
Spending on AI infrastructure continues to grow, with billions pouring into data centers and the latest AI chips. Putting together large clusters of thousands, and eventually, millions of chips running simultaneously for AI workloads is going to require tremendous amounts of power like the world’s never seen before. Goldman Sachs expects data centers to consume 165% more power by 2030, and this will benefit Applied Digital (APLD).
Applied Digital is a leader in designing and building data centers. It has two data center campuses in North Dakota with 286 megawatts of secured power, with the ability to scale this up to 1 gigawatt. The company previously offered hosting services for Bitcoin miners, but it recently shifted its focus to the bigger opportunity in AI.
Applied Digital is backed by Nvidia, which owns a small stake in the company. Nvidia worked with Applied Digital to design its data centers around Nvidia hardware. It has three data center facilities scheduled to become operational by 2027, with the first coming online in late this year.
The stock surged over the summer after extending its lease agreement with AI hyperscaler CoreWeave for 400 megawatts of power capacity. This brings Applied Digital’s total anticipated contracted lease revenue to about $11 billion over the 15-year agreement. CEO Wes Cummins says the leases will generate nearly $500 million in annual revenue and $300 million in operating income per year. For perspective, Applied Digital just reported $144 million in revenue for its fiscal year ending May 31, 2025.
The prospect of substantially more profit coming down the road is going to get investors to pay a higher valuation for the stock. Based on the future earnings from this deal, the stock still looks undervalued. Applied Digital’s current enterprise value (EV) is about $4.9 billion, so it’s trading at 17 times its forward operating profit, which doesn’t look cheap. But CoreWeave won’t be the last deal.
Cummins set a goal of reaching $1 billion in annual operating income in the next three to five years. Applying a 10 multiple to that target puts the the company’s future value at $10 billion, or double its current enterprise value. The stock would likely earn a much higher multiple considering the growing need for more computing and power capacity, which Applied Digital can supply by building more data centers.
The company will have to execute, and there is competition from other builders. But one more lease agreement with a major hyperscaler could easily double the stock in the next three years. Companies like Applied Digital are like the new oil drillers of the 21st century, and it’s still early. This is a highly volatile stock, but the long-term upside could be worth it.
2. Dell Technologies
Dell Technologies (DELL) is not just a personal computer brand anymore. It is the world’s leading supplier of servers, putting it in a great position to benefit from continued investment in AI infrastructure.
Dell’s business is split between two segments: infrastructure solutions (servers) and client solutions (PCs and peripherals). The infrastructure business is where the action is, which posted an impressive 44% year-over-year increase in revenue, or $16.8 billion, in the most recent quarter.
The stock is selling off after its fiscal Q2 2026 earnings report, which can be attributed to more revenue shifting to the lower-margin server business and a fiscal Q3 guidance that came in lower than expected. But Dell’s growth in servers positions it well to reward long-term investors.
Dell’s revenue and adjusted earnings grew 19% year over year last quarter. While servers generate lower-than-average margins for the company, the servers business generates most of the company’s profit. During the earnings call, management noted broad-based demand coming from multiple industries, which suggests Dell is in the middle of a big opportunity.
The company should see improving margins, as it offers value-added services to server customers. It was the first to offer Nvidia’s GB200 NVL72 and GB300 Blackwell computing systems to its customers last year. Dell’s competitive advantage is based on speed to market, engineering, and design within its data center solutions business.
Management sees the total addressable market in hardware and services increasing from $184 billion in 2024 to $356 billion by 2028. Its quarterly revenue of less than $17 billion in the infrastructure segment indicates it has plenty of room to grow.
The stock is cheap, trading at just 13 times this year’s consensus earnings estimate. That low valuation is in spite of analysts calling for Dell’s adjusted earnings to increase roughly 50% to $12.12 by fiscal 2028. A combination of higher earnings and an increase in the stock’s earnings multiple could double an investment today over the next three years.
— John Ballard
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Source: The Motley Fool