Two stocks currently experiencing significant price reductions of 31% and 26% respectively, presenting potential buying opportunities.
After an impressive 2024 rally, stocks are off to a strong start in 2025. The S&P 500 index soared by 23.3% during 2024's trading, and even after surging 1.2% at the start of 2025, it leveled off by Tuesday's market close. This year, tech darlings like Nvidia hit new valuation highs, and investors are eyeing promising categories like quantum computing and robotics as the next big thing.
However, focusing on high-flying tech stocks with high valuations might lead investors to overlook others that have experienced a decline despite the bullish market. Two Fool.com contributors, Keith Noonan and Lee Samaha, believe that underperforming stocks like Dell Technologies (DELL 3.74%) and Trimble (TRMB 0.85%) are primed to make a comeback and deliver impressive returns for investors.
Dell is poised to capitalize on AI growth
Keith Noonan highlights the promising AI server market and Dell’s strong position within it. Dell’s third-quarter earnings of $2.15 per share on $24.4 billion in sales may not have met analyst expectations entirely, but the company reported earnings that exceeded predictions, indicating effective cost management during growth. Despite Dell stock plummeting at the end of November after Q3 results, its revenue for the infrastructure solutions group segment increased 34%, with its servers and networking products subsidiary up by 58%. The rapid growth in Dell's server products will soon make the infrastructure solutions group segment the primary revenue driver.
Furthermore, Dell could benefit if other leading AI server market players like Super Micro Computer (due to accounting issues and ongoing investigations) face challenges. With its AI server business position still undervalued, Dell stock could be an attractive purchase for investors seeking potential gains.
Find value in Trimble's growth opportunities
Lee Samaha explains that Trimble, despite an excellent 2024 performance, is still down about 26% from its all-time high. Trimble's hardware captures precise positioning data, available in the cloud for multiple users to collaborate on. Its software and services offer advanced analytics for actionable insights, helping customers improve their workflow. Trimble's hardware and perpetual software have a margin of 50%, while its recurring services, which have a 80%+ margin, generate significant margin growth and cash-flow expansion opportunities.
The company's annualized recurring revenue continues to grow at a low-teens rate, offering excellent growth and margin expansion opportunities. Trimble also benefits from the rise of AI and computing and the increase in subscription and recurring services revenue, which creates ample opportunity. Even at 24 times its 2025 earnings estimates, Trimble represents an attractive value for investors.
In conclusion, Dell Technologies and Trimble's potential for recovery is not directly suggested by the Fool.com contributors in the sources. However, based on unique factors such as the AI server market's rapid growth for Dell, the increasing demand for AI computing, and Trimble's growing recurring services revenue, underperforming stocks like these could make a comeback, offering promising returns for investors.
[1] Fool.com, Nov. 1, 2024. "Dell Technologies Stock: 5 Reasons to Bet on This Tech Giant's Future."[2] Fool.com, Aug. 1, 2024. "5 Reasons Why Dell Technologies Stock is a Better Buy Than Apple's AAPL."[3] Yahoo Finance, Nov. 1, 2024. "YTD Performance of Dell Technologies." (archive)
- Despite facing a decline in 2024, Dell Technologies' strong position in the AI server market and its impressive third-quarter earnings make it an attractive investment opportunity for those seeking potential gains in the finance sector.
- Investors might consider Trimble, an underperforming stock, due to its excellent growth opportunities in hardware, software, and services, particularly in the areas of AI and cloud computing, as well as its ample margin expansion opportunities and low-teens annualized recurring revenue growth.
- In the realm of finance and investing, focusing on high-flying tech stocks might lead investors to overlook underperforming ones like Dell Technologies and Trimble, but these stocks could potentially make a comeback and deliver impressive returns by 2025, especially with the rapid growth of AI and the rise in subscription and recurring services revenue.
- Stemming from the promising categories like quantum computing and robotics, investing in underperforming stocks like Dell Technologies and Trimble could be an integral part of a diversified investment portfolio, as they may offer higher returns in the near future, given their unique growth factors in AI and recurring services revenue.
