Investing in stocks as an asset class offers an opportunity to generate substantial capital gains. And when it comes to investing, the S&P 500 Index ($SPX) serves as the most popular benchmark for gauging a stock’s performance. However, not all stocks outperform this benchmark, and only a handful consistently deliver superior returns.
Focusing on companies with solid earnings growth and strong fundamentals is the key to uncovering these outperformers. By targeting firms with sustainable business models, investors can achieve returns that outpace the broader market.
Against this backdrop, Dell (DELL) and Walmart (WMT) are two stocks poised to soar past the S&P 500 over the next five years. Let's understand why.
Dell Technologies
Dell Technologies (DELL) stock has shown remarkable growth over the past year, far outpacing the S&P 500. The stock has risen approximately 104.5%, outperforming the S&P 500 Index’s gain of 25.6%. This extraordinary growth is largely driven by Dell’s dominant position in the rapidly expanding artificial intelligence (AI) server market.
Dell’s success is underpinned by solid demand for its AI-optimized servers. Orders and shipments for these servers have consistently grown, and this momentum continued into Q2. Further, Dell’s advanced air and liquid-cooled AI servers, robust networking and storage solutions, and vast partner ecosystem provide a solid base for long-term growth, implying that the momentum in its business will likely sustain in the coming years.
Each quarter, more enterprise customers are buying AI solutions, and Dell is successfully tapping into this significant opportunity. For example, Dell shipped $3.1 billion worth of AI servers in Q2, with a backlog of $3.8 billion. This sets a strong foundation for future growth.
It’s worth noting that Dell is still early in its AI journey, and the potential with Tier-2 cloud service providers, enterprise customers, and emerging markets is huge. The company expects the AI hardware and services market to grow at a CAGR of about 22% over the next few years, providing a solid opportunity for growth as Dell continues to win key AI deals.
Beyond AI, Dell will likely benefit from a recovery in PC sales. By focusing on higher-margin segments such as commercial PCs, high-end consumer models, and gaming devices, Dell is well-positioned to bolster its earnings and enhance shareholder value.
In summary, Dell stock presents a compelling investment opportunity, supported by its dual growth engines of AI-driven demand and rebounding commercial PC sales. Further, the stock has witnessed a significant pullback in the recent past, losing over 32% of its value in three months - which presents a solid buying opportunity.
Wall Street is also optimistic about Dell’s prospects, with a consensus rating of “Strong Buy” among the 16 analysts in coverage.
Walmart
Walmart (WMT) stock has consistently crushed the S&P 500 Index with its returns over the past several years. This retail giant, known for its defensive business model, has safeguarded investor capital and delivered impressive returns, with its stock soaring approximately 46% in the past year and 100% over the last five years.
Walmart's focus on offering low prices and investments in technology have helped it stay ahead of the competition. The retailer integrated e-commerce with its physical stores, strengthening its market position. Further, innovative features like AI-driven product search, new checkout technology at Sam's Club, and social shopping features are making the shopping experience easier and more engaging for customers, driving its revenues.
Walmart is transforming from a traditional retailer into a more diverse business, incorporating digital commerce, membership programs, advertising, and data monetization. Advertising alone became a $3.4 billion business last year, while membership income grew by 20%. These new revenue streams are expected to drive further growth.
Its online business continues to deliver solid growth, with more products and sellers being added to its digital platform. Losses in global e-commerce are shrinking, especially in the U.S. and Flipkart, thanks to improved margins and reduced delivery costs. As more customers shop more frequently across different categories, Walmart is improving its delivery efficiency and profitability.
Walmart’s membership programs are growing rapidly. In the U.S., Walmart Plus saw double-digit growth during the last reported quarter. Moreover, Sam's Club reached a record high for member counts, resulting in an increase in membership income.
The retailer is automating its U.S. supply chain, making its operations more efficient. This will help the company grow profitably and create a better business mix over time. Additionally, Walmart continues to invest in store renovations and new locations, ensuring it stays competitive in key markets. Walmart is also expanding its product offerings and capabilities in global markets, which augurs well for future growth.
Overall, Walmart is poised to deliver solid growth in the coming years. Wall Street remains optimistic, with 25 out of 32 analysts giving Walmart stock a "Strong Buy" rating.
