The artificial intelligence (AI) server market has transformed into a fierce battleground lately, fueled by escalating investments from cloud giants and data center providers. This fervor has propelled the shares of industry stalwarts like Dell Technologies (NYSE: DELL) and Super Micro Computer (NASDAQ: SMCI) to astronomical heights.
Dell’s stock has surged nearly threefold over the past year while Super Micro Computer, or Supermicro, has skyrocketed an astounding 873%. Remarkably, both entities retain enticing valuations despite their meteoric rise in share prices.
The Dominance of Dell
As a major player in the global server arena, Dell Technologies commands a significant market share of 19%, as estimated by third-party data at the close of 2022. Given this substantial foothold, Dell naturally reaps the rewards of the surging demand for AI servers.
In its fiscal Q4 2024 (ended Feb. 29, 2024), Dell observed a robust 40% surge in orders for AI-optimized servers. With $800 million in AI server sales last quarter and a burgeoning backlog standing at $2.9 billion, Dell is primed for substantial growth in the sector. Projections peg the AI server market to soar to $150 billion in annual revenue by 2027, a fivefold jump from the previous year’s $30 billion, offering Dell ample room for expansion.
Although AI servers constitute a modest segment of Dell’s overall operations, the tide may soon turn with the potential resurgence in the client solutions category, which includes PC and workstation sales. Despite a downturn of 11% in revenue to $22.3 billion in fiscal Q4, growth prospects are bright with the anticipated adoption of AI-infused PCs.
Market forecasts predict a substantial uptick in shipments of AI-enabled PCs, climbing from 48 million units presently to a striking 205 million annually by 2028. With AI poised to rejuvenate Dell’s client solutions business, a return to growth beckons for the tech giant.
Super Micro Computer: A Rising Star
Although smaller in scale than Dell, Super Micro Computer has made significant waves with its AI server offerings. Raking in over half of its revenue from AI-centric server solutions, Supermicro is set to more than double its fiscal 2023 revenues to $14.5 billion this year.
Supermicro’s strategic manufacturing expansions aim to support an annual revenue potential exceeding $25 billion. With production utilization rates escalating rapidly, standing at 65% across its facilities, Supermicro is well-positioned to capitalize on its augmented capabilities.
The market consensus anticipates robust top-line growth for Supermicro in fiscal 2024 and beyond, echoed by management’s confidence in securing substantial business from leading data centers, emerging cloud services, and diverse enterprise clients.
The Final Verdict
Supermicro’s agility due to its smaller scale has conferred a distinct advantage, with its AI server offerings fueling exponential growth compared to Dell. Analysts foresee Supermicro’s earnings surging at an impressive 48% annually over the next five years, in stark contrast to Dell’s projected minimal earnings growth in the same period.
While Dell may present an allure with its undervalued stock trading at 15.7 times forward earnings, compared to Supermicro’s higher multiple of 36, the latter’s accelerated growth trajectory justifies its premium valuation.
Investors with an appetite for growth may find Super Micro Computer a compelling choice, given its rapid expansion and potential for substantial gains in the long haul.
Considerations for Investing in Dell Technologies
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool maintains a disclosure policy.
The opinions articulated herein solely represent those of the author and may not necessarily align with the views of Nasdaq, Inc.
