On the heels of an incredible rally, stocks are off to a strong start in 2025. After surging 23.3% across 2024's trading, the S&P 500 index rose roughly 1.2% early in this year's trading before flattening as of Tuesday's market close. Market darlings like Nvidia hit new valuation highs this week, and investors are looking to potentially explosive categories including quantum computing and robotics as "next big thing" contenders that could power future rallies.
While buying shares in top technology players with high-flying valuations could still have big payoffs, investors could wind up missing out if they ignore tech stocks that have seen their valuations slip despite the bullish market backdrop. With that in mind, read on to see why two Fool.com contributors think that underperforming stocks Dell Technologies (DELL -1.62%) and Trimble (TRMB 0.72%) are poised to bounce back and deliver big wins for investors.
Dell can still score big wins with AI
Keith Noonan (Dell Technologies): The market for artificial intelligence (AI) servers is hot right now and has plenty of room for long-term expansion. Dell has a strong position in the space, and its opportunities in the category could help power growth that translates into strong gains for shareholders. With the stock price still down 31% from its high, investors who take a buy-and-hold approach look poised to see strong performance from the company.
Dell stock fell at the end of November after the company reported mixed third-quarter results. The company posted earnings of $2.15 per share on sales of $24.4 billion. Meanwhile, the average analyst estimate had called for the business to post adjusted per-share earnings of $2.06 on sales of $24.7 billion.
The tech company's earnings for the period came in much better than anticipated, but its profits fell significantly short of Wall Street expectations. Despite the post-earnings sell-off stemming from the sales miss, there are actually good reasons to think that Dell will significantly outperform the broader market over the next five years. And one catalyst in particular looks poised to power strong performance for the stock.
Revenue for the company's infrastructure solutions group segment increased 34% year over year to hit $11.4 billion. Within the category, revenue for the servers and networking products subsidiary increased 58% year over year to hit $7.4 billion.
Thanks to rapid growth for its server products, Dell's infrastructure solutions group segment should soon account for the majority of overall revenue. With the segment standing as the company's fastest-growing by far, this positions the business's overall revenue to begin accelerating at a far more impressive clip. And with the company's earnings last quarter coming in far better than anticipated, Dell is showing that it can manage costs effectively and book strong profits as it scales its AI server business.
Even better, Dell could be set to benefit from the missteps of another leading player in the AI server market. Due to accounting issues and reports the company is being investigated by the Department of Justice and probed by the Department of Commerce, Super Micro Computer has been surrounded by controversy lately. Owing to the controversies, some reports have suggested that Nvidia has been diverting AI processor sales that would have gone to Super Micro Computer to its competitors.
With its position in the fast-growing AI server market still underappreciated, Dell stock looks like a smart buy right now.
A good value opportunity for a growth stock
Lee Samaha (Trimble): Despite an excellent performance in 2024, Trimble stock is still down almost 26% from its all-time high. The decline is surprising, given the positioning and workflow technology company's progress in recent years.
Its hardware captures precise positioning data, which is then available in the cloud for multiple users to collaborate on. Meanwhile, its fast-growing software and services solutions provide advanced analytics so customers can produce actionable insights to improve their daily workflow. One example is its core architecture, engineering, construction, owners (AECO) segment solutions, which help reduce waste, lower construction costs, and ensure that construction/infrastructure projects will be delivered on time.
The company has three exciting medium- and long-term earnings drivers:
- Companies are more aware of the benefits associated with connecting the digital and physical worlds and using advanced analytics and AI to improve execution. Trimble's technology is integral to making these connections.
- The relative increase in subscription and recurring services revenues creates margin growth and cash-flow expansion opportunities. This is because Trimble's gross profit margin on these services is above 80% while the margin is just 50% for hardware and perpetual software.
- The company's restructuring efforts (such as forming a joint venture with AGCO to boost its precision agriculture business and the recent sale of its transportation telematics business) create a more focused company better able to compete in chosen end markets.
With its annualized recurring revenue continuing to grow at a low-teens rate, Trimble's underlying growth and margin expansion opportunities are excellent. Trading at 24 times 2025 earnings estimates, it's still a good value for a growth stock.
