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Super Micro Computer (SMCI) has been a darling of the AI infrastructure boom, but recent events have cast a shadow over the company's meteoric rise. On Aug. 28, the company announced a delay in filing its 10-K report for the fiscal year ending June 30, 2024, causing the stock to drop by 19% in just one day.
News of the delayed filing directly followed a short-seller report from Hindenburg Research, accusing SMCI of accounting irregularities, self-dealing, and potential sanctions violations. While JPMorgan analysts have defended the artificial intelligence (AI) server stock, Wells Fargo and CFRA are among those that have slashed their price targets on SMCI in response to this week's news.
Despite SMCI's struggles, the AI infrastructure market is booming, with the global AI market projected to achieve a growth rate of 36.6% annually from 2024 to 2030. This explosive growth underscores the importance of identifying reliable companies positioned to capitalize on the AI revolution.
For investors who share CFRA's view on SMCI - bullish on the secular trends, but cautious about the company's potential reputational risk - here are three stocks with strong growth prospects in the AI infrastructure space.
#1. Dell Technologies Inc (DELL)
Dell Technologies Inc. (DELL) is a well-known name in tech, offering everything from personal computers to advanced cloud solutions and cybersecurity. With a market cap of $78.54 billion, Dell is a heavyweight in the tech world.
This year alone, Dell's stock has jumped 51%, and over the past year, it's soared by an impressive 104.5%.
The stock's forward price-to-earnings ratio of 14.33 is a steep discount to the tech sector median, making DELL an attractively priced option to invest in AI. Plus, Dell is keeping investors happy with a quarterly dividend of $0.445 per share, translating to an annual yield of 1.61%.
Dell Technologies has demonstrated robust financial performance, driven primarily by the surging demand for AI-optimized servers. In the fiscal second quarter of 2025, Dell reported earnings that exceeded Wall Street's expectations, with adjusted earnings per share (EPS) reaching $1.89. The company's revenue rose 9% year-over-year to $25 billion, outpacing the forecasted $24.2 billion.
Looking ahead, Dell revised its annual revenue forecast upwards to between $95.5 billion and $98.5 billion, reflecting confidence in continued demand for AI infrastructure. However, the company acknowledges potential pressures on operating margins due to inflationary input costs and a competitive environment. To mitigate these challenges, Dell is leveraging generative AI internally to enhance efficiency and customer experiences.
Notable moves include the Dell Validated Design for Generative AI with Nvidia (NVDA), which helps customers make quicker, better predictions. Dell's PowerEdge XE9680 servers, tailored for generative AI, are the fastest-growing new product in Dell's history. They're breaking ground by partnering with Hugging Face for optimized on-premises AI model deployment and collaborating with Meta (META) and Microsoft (MSFT) to simplify AI adoption.
Analysts are optimistic about Dell, rating it a “strong buy,” with the mean target price of $154.33 suggesting a potential upside of about 33.5%. Out of 16 analysts, 12 recommend a “strong buy,” two say it's a “moderate buy,” and two suggest a “hold.”
#2. Arista Networks Inc. (ANET)
Arista Networks Inc. (ANET) stands out in the computer networking industry, renowned for its software-defined networking (SDN) solutions that cater to large data centers and cloud computing needs. Based in Santa Clara, California, Arista serves a diverse clientele, including cloud providers, ISPs, financial services, and government agencies, reflecting its broad market reach.
The stock's performance has been remarkable, with a 50% increase year-to-date and a 90.6% rise over the past year. Since hitting an all-time high of $376.50 in July, ANET has pulled back, providing a potential entry point.
With a market cap of approximately $108.6 billion and a relatively high forward P/E ratio of 42.06, Arista is priced for growth, and should appeal to investors seeking long-term capital appreciation.
In Q2 of 2024, Arista reported $1.69 billion in revenue, up 15.9% from the previous year, and non-GAAP EPS of $2.10, beating expectations. Non-GAAP gross margin was 65.4%, which surpassed management's estimates, and Arista generated $989 million of cash from operations during the quarter.
For the current quarter, ANET guided for revenues of approximately $1.72 billion to $1.75 billion, which surpassed Wall Street's forecast at the midpoint. Management is looking for Q3 gross margin of approximately 63% to 64%, and operating margin at approximately 44%, with full-year revenue growth expected to reach 14%.
A recent win for Arista is being chosen by the Alabama Fiber Network for a $340 million middle-mile network project, highlighting their expertise in scalable networking solutions. They're also collaborating with Nvidia on holistic AI solutions, aiming to merge compute and network domains into a unified AI entity, and earlier this year introduced the Arista Etherlink AI platforms to boost network performance for AI workloads.
Analysts are generally optimistic about Arista, with a "moderate buy" consensus from 23 analysts. Fifteen recommend a “strong buy,” 2 suggest a “moderate buy,” 5 advise a “hold,” and 1 recommends a “strong sell.” ANET trades nearly flat with its mean price target of $356.65, but its Street-high target of $432 implies expected upside of 22%.
#3. Pure Storage Inc. (PSTG)
Pure Storage Inc. (PSTG) is making a name for itself in the enterprise data storage sector, with its all-flash storage systems designed to replace traditional disk arrays. Founded in 2009 and based in Santa Clara, California, Pure Storage focuses on delivering a modern data experience that simplifies IT infrastructure and boosts performance.
Despite reporting 11% year-over-year revenue growth in the second quarter, driven by a 25% increase in subscription services revenue, PSTG stock has taken a hit this past week.
For the second quarter of fiscal 2025, PSTG beat expectations by reporting adjusted EPS of $0.44 on revenue of $763.8 million. However, analysts were rattled by a miss on product revenues, as well as the company's downwardly revised guidance for total contract revenue growth. After earnings, PSTG was hit with reduced price targets from analysts at TD Cowen, Citi, and Piper Sandler, with many firms still awaiting signs of a broader positive inflection for data storage.
The stock is now down 28.5% from its mid-June highs, presenting a potential buy-the-dip opportunity, with PSTG still up 43.8% YTD.
Notably, PSTG now trades at a forward P/E ratio of 30.94 - still pricing in elevated expectations for future earnings growth, but more reasonable than its 39x multiple from earlier this summer, when UBS downgraded the stock on valuation concerns.
At the recent Pure//Accelerate conference, Pure Storage unveiled new platform capabilities to enhance AI deployment and cyber resilience. They're on track to become a certified storage solution for NVIDIA DGX SuperPOD by the end of 2024, aligning with top AI technologies.
Analysts generally have a positive outlook on Pure Storage, with a "moderate buy" consensus from 21 analysts. The average target price is $69.00, indicating a potential 34.5% upside. In total, 12 recommend a “strong buy,” 2 suggest a “moderate buy,” 6 advise a “hold,” and 1 recommends a “strong sell.”
While the growth story may take some time and patience to play out, Pure Storage's strategic initiatives and robust financials position it well for long-term growth in the evolving data storage landscape.
Conclusion
While Super Micro Computer faces serious questions around its accounting delay, Arista Networks, Dell Technologies, and Pure Storage offer compelling alternatives for investors looking to tap into the AI infrastructure boom. Each company brings unique strengths to the table — Dell with its AI-optimized servers, Arista with its networking prowess, and Pure Storage with its cutting-edge data solutions. With strong financial performances and promising long-term upside, these stocks are solid picks for investors eyeing growth opportunities in AI right now.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
