In recent years, the technology sector has emerged as a cornerstone of market expansion, with innovations, particularly in the realm of generative AI, playing a pivotal role in enhancing software capabilities. This surge in AI technology paves the way for unprecedented opportunities, but it’s important to recognize that the hardware driving these advancements is equally crucial. This reality presents worthwhile investment prospects within technology firms specializing in server hardware essential for running AI applications.
At the forefront of this discussion is Vijay Rakesh, a prominent analyst at Mizuho, who has recently spotlighted the AI landscape, particularly hardware suited to support AI operations.
Rakesh emphasizes, “The landscape of generative AI is fostering both growth and transformation across numerous sectors, effectively pushing the boundaries of innovation and productivity. The infrastructure powered by AI servers serves as the backbone of this technological revolution.” Predictions indicate that the AI server market could balloon to approximately $406 billion by 2027, witnessing a remarkable compound annual growth rate (CAGR) of around 54%, primarily fueled by demand from Cloud Service Providers (CSPs) and enterprise clients. With the exponential growth of generative AI, the AI server landscape is poised for sustained progression.
In light of this, Rakesh identifies two significant players within this sector: Super Micro Computer (NASDAQ: SMCI) and Dell Technologies (NYSE: DELL), and offers insights into which company he believes represents the superior investment opportunity.
Starting with Super Micro Computer, a renowned Silicon Valley entity, this company focuses on designing and manufacturing cutting-edge hardware designed for high-performance computing and advanced server solutions. Super Micro doesn’t merely supply hardware; it also offers state-of-the-art management software and memory storage systems for a diverse array of enterprise-centric applications such as AI, cloud computing, data facilities, edge computing, and 5G networks.
With a history spanning over three decades, Super Micro has positioned itself as a trusted provider for high-end computing requirements. The firm excels in the intricate design and assembly of sophisticated server infrastructures and high-performance systems, tailored to accommodate both bespoke and standard configurations. Particularly noteworthy is Super Micro’s capacity to manufacture upwards of 5,000 AI, high-performance computing, and innovative cooling solutions monthly.
In its latest financial quarter, Super Micro reported an impressive revenue of $5.3 billion for fiscal Q4 2024, clocking an astonishing 143% increase year-over-year, although its earnings per share (EPS) slightly missed forecasts. Notably, the company has experienced a significant decline in share value since reaching a peak in March this year, largely due to adverse reports from short sellers and operational delays. As a strategic move, Super Micro’s management has approved a 10-to-1 stock split, effective October 1, 2024.
However, Rakesh points out rising concerns for Super Micro, noting increased competition as it grapples with potential market share erosion in a rapidly growing sector. Rakesh maintains a Neutral rating on the stock with a price target of $450, suggesting a lack of significant movement in the stock price over the next year.
On the other hand, Dell Technologies presents a compelling narrative. Known for its stronghold in personal computing, Dell has successfully expanded into the server market, developing comprehensive hardware products that support AI and high-performance computing requirements. The acquisition of EMC in 2016 transformed Dell’s business, integrating advanced data storage solutions into its portfolio.
Dell’s recent financial performance reflects its strength, reporting a 9% year-over-year revenue increase in its fiscal Q2 2025, which surpassed prior expectations. Key contributors to this success included remarkable growth in its Infrastructure Solutions Group and Networking segments.
Rakesh views Dell as well-positioned in the AI server domain, with solid partnerships and a balanced approach between its diverse hardware offerings and its thriving retail PC division. His forecast for Dell remains optimistic, predicting EPS exceeding $9 by fiscal 2026.
With a substantial number of recent analyst endorsements leaning toward a Strong Buy consensus, Rakesh’s rating of Outperform on Dell, coupled with a price target of $135, positions it as an attractive opportunity for investors looking to capitalize on the burgeoning AI hardware market.
When weighing the two contenders side by side, it’s evident that Dell Technologies holds an edge as the favored investment within the AI hardware sector among industry analysts.
As the AI landscape evolves rapidly, savvy investors should closely monitor these technological titans, understanding that the correct choice in this competitive environment could lead to significant long-term rewards. Remember, as this sector grows, so does the potential for transformative changes across various industries driven by innovative hardware solutions.