Simplified Summary
In recent years, both Super Micro Computer (Supermicro) and Dell Technologies have transitioned away from selling traditional servers and toward AI-powered solutions. As demand for AI servers has increased, their financial performance has improved, resulting in higher stock prices.
Supermicro’s stock has increased by 1,230% in the last three years, owing mostly to its concentration on providing high-performance AI servers, particularly those powered by Nvidia CPUs. In instance, Dell’s stock increased by more than 140% after launching its own AI servers, although Dell’s company is far more diverse.
However, in recent months, Supermicro has faced issues. Its stock has fallen 50% owing to declining profit margins, claims from a short seller, and suspicions of a Department of Justice (DOJ) investigation. Meanwhile, Dell’s stock price has dropped only 8%, and the company continues to develop steadily without the same issues.
Supermicro’s Growth and Challenges
Supermicro is a lesser participant in the worldwide server industry, accounting for only 6% in early 2024, while Dell leads with 58%. Supermicro, on the other hand, distinguishes itself by providing specialized, high-performance servers, making it an important partner for Nvidia. Supermicro’s revenue increased fast, from $3.6 billion in 2021 to $14.9 billion in 2024, with AI servers accounting for more than half of all sales.
Despite its tremendous expansion, Supermicro is now facing severe competition from larger businesses such as Dell and Hewlett-Packard Enterprise, which are increasing their own AI server manufacturing. This rivalry, along with falling profit margins and the Hindenburg Research study accusing Supermicro of accounting irregularities, has resulted in severe losses for the firm. There are also claims of a DOJ inquiry, although no official confirmation has been provided.
Analysts continue to estimate Supermicro’s revenue to expand by 87% and earnings per share (EPS) to climb by 47% in 2025. However, unless the firm overcomes its current issues, its shares might stay cheap.
Dell’s Stable but Slower Growth
Dell, on the other hand, runs a more balanced corporation. While it offers AI servers, they only made about 12% of its revenue in the most recent quarter. Dell also provides PCs, storage solutions, and peripherals, all of which have had slower growth as the PC market has cooled and business spending has declined.
Dell’s sales and earnings per share declined 14% and 6%, respectively, in 2024. However, the business expects to resume growth in 2025 when demand for PCs and data storage rises again. Dell’s long-term goal is to boost sales by 3-4% per year and earnings per share by at least 8%. Furthermore, Dell has pledged to return more than 80% of its free cash flow to shareholders via stock buybacks and dividends.
Dell’s stock is quite affordable, selling at 13 times forecast profits with a 1.4% dividend yield. Its consistent financial performance and absence of major scandals make it a safer but slower-growing investment than Supermicro.
Which is the Better Buy?
Supermicro has a bigger growth potential, but it carries more risk owing to its existing issues. Dell is a more solid investment, but it may not produce the same profits as Supermicro. Investors wanting better returns and prepared to take on more risk may select Supermicro, but those looking for consistent growth may prefer Dell.
This article is based on information from a Motley Fool report published on October 15, 2024. Original content by Leo Sun. You can check out the full article here.
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