These two technology stocks with attractive valuations could prove to be smart long-term investments.
Tech stocks have been in impressive form in the market over the past year, posting gains of 33% at the time of writing, thanks to the emergence of a major catalyst in the form of intelligence artificial (AI). Nvidia (NVDA -3.20%) has proven to be one of the biggest beneficiaries of the proliferation of AI, with the company’s shares up 209% over the past year.
Nvidia’s astonishing recovery is justified by the company’s tremendous revenue and profit growth. Its revenue in fiscal 2024 (which ended in January) increased 126% year over year to $60.9 billion. Meanwhile, non-GAAP (generally accepted accounting principles) earnings rose 288% to $12.96 per share. Analysts expect Nvidia’s revenue to double again in the current fiscal year to $120 billion.
There is therefore a good chance that Nvidia will remain a leading technology stock in 2024 and beyond. However, Nvidia now trades at 77x current earnings and 50x forward earnings, which is higher than the US tech sector average of 47x. Nvidia’s ability to maintain healthy growth could help it justify its high valuation, although it won’t be surprising to see savvy investors looking for cheaper tech stocks that could prove winners in the future.
That’s why now would be a good time to take a closer look Dell Technologies (DELL -0.45%) And DigitalOcean Fund (DOCN -2.46%)two technology stocks that are currently trading at attractive valuations and look set to grow at an impressive rate in the future.
1. Dell Technologies
Dell Technologies stock has soared 172% over the past year as investors bought the technology specialist due to its improving AI outlook. However, Dell stock has declined nearly 25% since hitting its 52-week high in late May. Investors hit the panic button as Dell’s financial performance wasn’t very good last quarter and its outlook for the current year didn’t meet expectations.
The good news, however, is that Dell currently trades at just 1.1 times sales. This is well below the US technology sector’s average price-to-sales ratio of 8. Additionally, Dell’s current earnings multiple of 27 and forward earnings multiple of 17 make it an attractive bet in light of the potential acceleration of its growth.
Dell’s full-year revenue forecast of $95.5 billion would translate into an 8% improvement in its revenue in fiscal 2025. That would represent an improvement significant compared to the 14% decline in its revenue in fiscal 2024, to $88.4 billion. This impressive turnaround that Dell is forecasting this year can be attributed to growing demand for its AI servers, as well as a recovery in the personal computer (PC) market.
Dell’s infrastructure business, which includes sales of servers and networking equipment, grew an impressive 22% year-over-year in the previous quarter, reaching $9.2 billion. The company shipped $1.7 billion worth of AI servers in the first quarter of fiscal 2025, an increase of more than 100% on a sequential basis. More importantly, its AI server backlog grew 35% quarter-over-quarter to $3.8 billion, indicating its infrastructure business could continue to improve .
In contrast, Dell’s revenue in the Client Solutions Group was flat year-over-year last quarter at $12 billion. However, this business appears poised for a turnaround thanks to a recovery in the broader PC market, driven by the growing adoption of AI-enabled PCs. Market research firm IDC forecasts a 2% increase in PC shipments this year, following a nearly 14% decline last year.
Unsurprisingly, Dell management noted during the company’s recent earnings conference call that it was seeing “an improving demand environment” for PCs, a trend that is likely to continue into due to additional enablers such as an aging installed base of machines that will require an upgrade.
As a result, it won’t be surprising to see Dell stock regain its momentum and rise again as its growth accelerates. That’s why investors would do well to add this tech stock to their portfolios while it’s still cheap.
2. DigitalOcean Fund
DigitalOcean Holdings provides a cloud computing platform that offers both Platform as a Service (PaaS) and Infrastructure as a Service (IaaS), which developers can use to build, deploy and scale applications. However, the stock’s performance has been lackluster so far this year, falling almost 5%.
As a result, investors can get their hands on DigitalOcean shares cheaply, as they trade at 4.7 times sales. The stock briefly rose after releasing its first-quarter results last month.
AI has played a significant role in this push. Customers are gearing up for DigitalOcean’s AI-driven cloud offerings. For example, demand for DigitalOcean’s cloud computing solutions, used to train AI models, is so strong that the company expects demand to outstrip supply.
This also explains why DigitalOcean is seeing improvement in customer spending. Its average revenue per user (ARPU) increased 8% in the first quarter to $95.13. The company also raised its full-year revenue growth forecast to a range of $760 million to $775 million, up from $755 million to $775 million previously.
There’s a good chance that DigitalOcean will revise its full-year guidance upwards as the year progresses, as management says the company “consistently sells within our available capacity as it is put online. With demand for cloud AI infrastructure expected to grow at an annual rate of 31% through the end of the decade and DigitalOcean continues to bring more capacity online to target this lucrative opportunity, there are strong chances of its growth accelerating in the future. .
This is precisely what analysts expect, as the chart shows.
DOCN revenue estimates for current fiscal year data by YCharts
DigitalOcean’s revenue forecast for 2024 calls for an 11% increase in revenue. It is expected to grow at a faster rate next year, followed by further improvement in 2026. However, DigitalOcean may deliver growth better than Wall Street expected, thanks to the company’s efforts to capture a larger share of the cloud AI infrastructure market.
This is why DigitalOcean Holdings could eventually prove to be a smart buy for tech investors. Not only is it cheaper than big names like Nvidia, but it also has a solid growth engine that could help drive healthy long-term gains.