Stocks to buy

3 AI and Data Stocks Set to Leave Big Tech in the Dust

AI and data stocks have shown no sign of slowing down in this current market. Indeed, many of the top names have left the broader market in the dust over the past few years. These companies are only seeing more and more demand due to companies expanding and working on their own AI models. Huge amounts of data are being scraped and stored in data centers, and this data is needed to run the AI models of the future.

Companies could previously get rid of unnecessary data to clear up space, but human-generated data has turned into digital fuel, so to speak. We’ve seen many companies capitalize on this trend by hiking prices for access to their APIs. Reddit (NYSE:RDDT) is charging massive amounts for API access, so AI companies now have to pay Reddit for human-generated data on its platforms.

Plus, with text-to-video AI models getting more and more realistic, I don’t think data center companies are going to see softening demand anytime soon. Here are three AI and data stocks that I think could continue outperforming big tech over the coming years.

Arista Networks (ANET)

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Arista Networks (NYSE:ANET) is one of the biggest beneficiaries of the AI and data center mega trends, with the stock up 113% over the past year. I believe Arista has plenty of runway ahead to continue compounding gains for long-term growth investors.

In Q1, Arista delivered robust results with revenue totaling $1.57 billion, up over 16% year-over-year. Additionally, the company’s $1.99 of earnings per share beat estimates by 25 cents. Arista is targeting at least a $60 billion total addressable market in data-driven client-to-cloud AI networking. Indeed, I think Arista is well-positioned to gain a massive market share, as more companies invest in AI + cloud.

While ANET stock does trade at a premium valuation, I believe it’s justified, given the company’s impressive growth. As long as data center and AI spending remains robust, investors will likely continue holding up this stock’s premium.

Nutanix (NTNX)

Source: Sundry Photography / Shutterstock.com

Nutanix (NASDAQ:NTNX) provides cloud software and hyper-converged infrastructure solutions which have also continued to see robust demand.

As you might’ve guessed, Nutanix delivered solid results that exceeded guidance across all key metrics, like almost every other data company. However, there is a bit more debate with this stock, since the company’s forward guidance wasn’t that strong. That said, Nutanix’s revenue grew nearly 17% year-over-year to $525 million, while the company’s annual recurring revenue (ARR) surged 24% to $1.82 billion. The company also generated robust free cash flow. Significant EBIT growth is expected as revenue compounds over time.

The stock has pulled back recently on disappointing guidance. However, I think the bar is now set low enough for the company to clear. Earnings per share are expected to double this year and again over the next three years. This earnings growth is expected to be driven by 15%-20% annual revenue growth. So, Nutanix’s valuation of 44-times forward earnings and 6-times sales looks quite reasonable in this market.

If the company’s management team continues executing, we could see the stock stage a nice recovery.

Vertiv (VRT)

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Vertiv (NYSE:VRT) provides critical digital infrastructure and continuity solutions. I believe VRT stock could outperform its big tech peers in the coming years. That’s mostly due to the fact that Verity has some robust data center and AI growth catalysts that have yet to be fully priced in. While the stock has pulled back roughly 14% from its highs, it’s still up a whopping 292% over the past year. Analysts expect the stock to continue churning higher from here.

Vertiv’s Q1 results were strong, with sales up 8% to $1.64 billion and adjusted operating margins expanding 370 basis points to 15.2%. Notably, orders surged 60% year-over-year, mostly for deliveries set to take place beyond 2024, so there is robust long-term demand to support the company’s growth profile.

I think this recent correction looks like an attractive entry point for this leading data center infrastructure play. As more computing moves to the cloud and AI workloads explode, Vertiv seems well-positioned to be a prime beneficiary of these trends. If Vertiv can maintain this momentum and the market cooperates, I believe VRT stock could be a big winner. And if everything goes well, this company could easily provide growth that outpaces its big tech peers.

On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.

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