Demand for artificial intelligence (AI) hardware has jumped substantially in the past couple of years. Technology giants in the U.S. and abroad, along with governments around the globe, are pouring billions of dollars into developing powerful large language models (LLMs), which can then be deployed to create useful applications to enhance productivity.
Market research firm IDC is expecting global AI spending to hit a massive $337 billion this year. That figure is expected to more than double by 2028 to $749 billion. This huge spending is going to be a tailwind for Oracle(NYSE: ORCL) and Dell Technologies(NYSE: DELL), two tech giants that are already benefiting from the huge outlay on AI infrastructure.
However, both stocks have been under pressure this year. While Oracle is down 10% so far in 2025, Dell is down by 16%. But a closer look at the recent developments in their businesses suggests that the downturn may not last for long. So, which one of these two AI stocks is the better buy on the dip?
Let’s find out.
Oracle has traditionally been known for providing database management software, but AI has opened a whole new growth opportunity for the company. Customers have been rushing to rent Oracle’s cloud infrastructure for both AI model training and inferencing applications. In fact, the demand for Oracle’s cloud infrastructure is so strong that it doesn’t have enough capacity available to meet all of it.
Oracle’s cloud infrastructure revenue shot up an impressive 51% year over year in its fiscal 2025’s third quarter (which ended on Feb. 28). The segment’s growth was well ahead of the 8% increase in Oracle’s overall revenue last quarter. The cloud infrastructure business now produces 19% of Oracle’s top line, up by almost six percentage points from the year-ago period.
This business is set to move the needle in a bigger way for Oracle in the future. Customers continue to line up to rent Oracle’s cloud AI infrastructure, as evidenced by the $48 billion worth of bookings that it received last quarter. As a result, the company’s remaining performance obligations (RPO) jumped 63% year over year to $130 billion.
RPO is the total value of a company’s contracts that are yet to be fulfilled. The good part is that the growth in this metric accelerated in the previous quarter by a whopping 22 percentage points when compared to the year-ago period. Simply put, the demand for Oracle’s cloud infrastructure has strengthened, and this business is set to drive stronger growth for the company.
Not surprisingly, Oracle is ramping up its cloud capacity at an aggressive pace to meet the solid end-market demand. CEO Safra Catz remarked on the company’s latest earnings conference call:
And we expect that our available power capacity will double this calendar year and triple by the end of next fiscal year. As we bring more capacity online, our revenues will clearly accelerate. What we are seeing in the market is that we are the destination of choice for both AI training and inferencing.
Oracle is doing the right thing by bumping up its capacity as the size of the cloud infrastructure-as-a-service market is expected to reach a whopping $580 billion by 2030. An increase in capacity will allow Oracle to corner a bigger share of the end market, which is why the company is expecting to clock 15% revenue growth in the next fiscal year, followed by a 20% increase in fiscal 2027.
For comparison, Oracle is expected to conclude the ongoing fiscal 2025 with an 8% increase in its top line. Moreover, with new growth drivers such as the $500 billion Stargate Project coming into play, there is a good chance that Oracle could eventually grow at a faster pace than what it is currently projecting.
AI training and inference in the cloud take place with the help of specialized servers that are set up in a way that they can process huge amounts of data quickly and in an efficient manner with the help of various types of chips that include graphics cards, processors, and high-bandwidth memory. Not surprisingly, the demand for AI servers has shot up remarkably for training and deploying AI models and applications.
According to one estimate, sales of AI servers could jump by almost 6 times between 2024 and 2030, generating an annual revenue of $838 billion by the end of the decade. Dell is the largest player in the server market, with an estimated market share of 7.2% in the fourth quarter of 2024. The booming demand for AI servers gave Dell’s infrastructure business a big lift in the recently concluded fiscal 2025, with its revenue from this segment jumping an impressive 29% year over year to $43.6 billion.
The company sold $10 billion worth of AI servers last year. It is targeting a 50% jump in AI server revenue in the current fiscal year. However, don’t be surprised to see Dell exceeding its expectations. The company reported an AI server backlog worth $4.1 billion at the end of the previous quarter. However, it then struck a deal with xAI in February for AI servers worth $5 billion, taking its total backlog to $9 billion.
The delivery of the equipment to xAI is expected to be completed this year. Moreover, the potential growth opportunity in the AI server market, along with Dell’s strong position in this space, suggests that it still has a lot of room for growth. Throw in the fact that Dell has an additional AI-related catalyst in the form of the market for AI PCs (personal computers), and there is a good chance that its growth could accelerate in the future.
However, Dell is expecting its revenue to increase by 8% in the current fiscal year, which would be identical to the previous one. Analysts are expecting identical growth in the next fiscal year, followed by a slowdown two years later.
There is a possibility that Dell could beat these expectations once PC sales start improving and complement the healthy growth in the company’s infrastructure business.
While Dell’s future does seem promising thanks to the two AI-related catalysts the company is sitting on, the rapid proliferation of this technology is moving the needle in a bigger way for Oracle. This is evident from Oracle’s guidance for the next couple of fiscal years, which points toward an improvement in its growth rate.
Dell, on the other hand, may have to wait for its PC business to get back into good shape. The one thing in Dell’s favor is its cheap valuation, as we can see in the chart below, but the premium that Oracle is trading at is justified.
Oracle has built up a massive revenue pipeline that should translate into years of solid growth. Moreover, Oracle’s valuation isn’t all that expensive when compared to the tech-laden Nasdaq-100 index’s forward earnings multiple of 25 (using the index as a proxy for tech stocks). So, investors looking to add one of these two AI stocks to their portfolios have an easy decision to make after considering the points discussed above.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.
