The tech industry’s rapid growth can be attributed to innovations in generative AI, which are revolutionizing software capabilities and promising increased productivity and adaptability. However, the backbone of this progress lies in the hardware that drives these advancements. This presents a compelling investment opportunity in tech companies that specialize in server hardware necessary for running AI applications.
Vijay Rakesh, a 5-star analyst at Mizuho, has shifted his focus to the AI space, highlighting the significance of server hardware in enabling the AI revolution. According to Rakesh, “The AI server market is projected to reach $406 billion by 2027, growing at a 54% CAGR driven by cloud service providers and enterprise demand.”
Not all AI stocks are created equal, and some offer better investment prospects than others. Rakesh identifies two key players in this space: Super Micro Computer and Dell Technologies. Let’s delve into both companies, using the latest data from TipRanks alongside insights from Mizuho’s report.
Super Micro Computer is a Silicon Valley-based firm that specializes in developing and producing high-performance computing and high-end server stacks. The company has established itself as a go-to for high-end computing needs, offering custom-built and off-the-shelf solutions. Despite its impressive revenue growth of 143% in its last reported quarter, Super Micro’s shares have fallen sharply due to increasing competition and market share loss.
Rakesh attributes the company’s struggles to the growing competition in the AI hardware segment, which is pressuring pricing and margins. He maintains a Neutral (Hold) rating on the stock, with a $450 price target.
On the other hand, Dell Technologies has built a solid AI hardware business while maintaining its retail PC business. Rakesh notes that the company is well-positioned in the AI server race, thanks to its strong partnership with NVIDIA and aggressive pricing strategy. Dell’s diversified portfolio, including PC, conventional servers, services, and storage solutions, provides a tailwind for the company.
Rakesh is upbeat about Dell’s prospects, expecting the company to continue taking market share in AI servers and maintaining a strong position in compute servers. He assigns an Outperform (Buy) rating to the stock, with a $135 price target.
Comparing the two stocks, it’s clear that Dell Technologies is the superior AI hardware stock for investors to buy, according to Rakesh. With its diversified portfolio and strong position in the AI server market, Dell offers a more compelling investment opportunity than Super Micro Computer.
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