The AI Revolution: Dell and Super Micro in the Analyst Spotlight

The world of Star Trek always began with Captain Kirk’s solemn statement that space was the final frontier. For fans of the science fiction series, this may be true, but in the real world, another, equally fascinating frontier has emerged: Artificial Intelligence (AI). This groundbreaking technology could fundamentally reshape the future and bring science fiction elements into reality. Recently, two prominent players in the field of AI technology were the focus of a research report by Mizuho Financial Group. Under the title 'Delivering the AI Punch,' Vijay Rakesh analyzed the companies Dell Technologies and Super Micro Computer, highlighting their role in the growing market for AI servers. “Generative AI is driving growth and disruption in various markets, expanding the boundaries of innovation and productivity,” explained Rakesh. This type of AI is capable of generating texts, images, videos, or other data and plays a central role in realizing the AI revolution. According to Rakesh, AI servers form the infrastructure that enables this revolution, with Dell and Super Micro seen as pioneers. Rakesh rated Dell with an 'Outperform' rating and a price target of $135, while Super Micro received a 'Neutral' rating and a price target of $450. The market for AI servers, specialized computer systems for managing AI workloads, is estimated to reach approximately $406 billion by the end of 2027, with an annual growth rate of around 54%. This growth is mainly driven by the demand from enterprises and cloud service providers, encompassing both dominant hyperscalers and smaller Tier-2 companies. However, despite the growth prospects, Rakesh pointed out that the increasing competition is putting pressure on margins. Should server infrastructures transition more slowly to liquid-cooled systems in the years 2025-26, margins could further decrease. Liquid cooling requires less energy and water than air cooling but demands high upfront investments. Companies with broader portfolios are more likely to benefit, especially if margins remain under pressure. While AI acts as a driving force, Rakesh appreciates Dell’s diversification across PC and storage solutions as long-term value. In contrast, Super Micro experienced a loss of market share and faces pressure due to margin issues and internal control weaknesses. Conversely, Dell managed to impress with a broader product portfolio and solid cash flow management. In the second quarter, Dell exceeded Wall Street expectations thanks to rising server revenues. Jeff Clarke, Vice President and COO of Dell, emphasized, “Our AI momentum accelerated in the second quarter, and we are seeing an increasing number of enterprise customers adopting AI solutions.” However, Dell plans additional restructuring measures, including job cuts and adjustments in investment strategies, to align for long-term success. Meanwhile, Super Micro was confronted with a critical report from Hindenburg Research, accusing the company of concealing accounting irregularities, export control issues, and problems in customer relations. Consequently, companies like Tesla and Nvidia increasingly shifted to Dell. The day after the report, Super Micro announced that it would be late in submitting its annual report. Additionally, the results for the fourth fiscal quarter were disappointing, and the forecasts for the current quarter remained mixed.