In recent years, the technology sector has emerged as a crucial engine of market growth, with innovations in generative AI significantly enhancing software capabilities and increasing productivity across digital tools. However, this progress hinges on the hardware that supports it, highlighting compelling investment opportunities in tech companies that provide the essential server hardware for AI applications.
Vijay Rakesh, a 5-star analyst at Mizuho, has turned his attention to the AI sector, specifically focusing on server hardware. He notes, “Generative AI is driving growth and transformation in various markets, pushing innovation and productivity boundaries. AI servers form the backbone of this AI revolution.” Rakesh points out that the AI server market is projected to reach approximately $406 billion by 2027, growing at an estimated 54% CAGR due to demand from cloud service providers (CSPs) and enterprises. He anticipates significant growth in generative AI will further fuel this expansion.
Not all AI stocks are equally promising, however, and Rakesh identifies two key players in the market: Super Micro Computer (NASDAQ: SMCI) and Dell Technologies (NYSE: DELL), offering insights into which stock stands out as a must-buy.
Super Micro Computer
Super Micro Computer is a Silicon Valley-based firm specializing in high-performance computing and server hardware. The company has been a go-to source for enterprise applications, including AI, cloud computing, and data centers, for over 30 years. Super Micro’s extensive product offerings range from customizable solutions to standard systems, backed by a manufacturing capacity of around 5,000 AI and HPC rack solutions each month.
Financially, Super Micro reported $5.3 billion in revenue for fiscal Q4 2024, marking a 143% increase year-over-year, although its EPS of $6.25 fell short of expectations. The company’s stock has seen a 61% decline from its peak in March, largely due to a negative short seller report and delays in its 10-K filing. Despite this, Super Micro still demonstrates a year-to-date gain of approximately 63%.
Rakesh acknowledges Super Micro as a leader in the AI server market, but notes increasing competition and a decline in market share, which has fallen from 80-100% in 2022-23 to an estimated 40-50% in 2024. He has a Neutral (Hold) rating on SMCI with a price target of $450, suggesting the stock may remain relatively flat over the next year. Overall, SMCI holds a Hold consensus based on 13 reviews, including 2 Buys, 10 Holds, and 1 Sell, with a current price of $463.61 and a potential upside of 32.5%.
Dell Technologies
Dell Technologies, known for its PCs and laptops, has expanded its offerings to include high-performance server solutions for AI and enterprise applications. Following its acquisition of EMC in 2016, Dell has positioned itself as a key player in the AI hardware market, catering to AI developers and data centers.
In its most recent financial report for fiscal Q2 2025, Dell exceeded expectations with revenues of $25 billion, a 9% increase year-over-year. Notable growth was seen in the Infrastructure Solutions Group, which increased by 38% to $11.6 billion, and the Networking segment, which rose by 80% to $7.7 billion.
Rakesh expresses optimism about Dell’s position in the AI server market, citing strong partnerships and a diversified business model that includes PCs, conventional servers, and storage solutions. He has an Outperform (Buy) rating on Dell with a price target of $135, projecting continued strong performance and market share growth. With 17 recent analyst reviews showing 14 Buys and 3 Holds, Dell holds a Strong Buy consensus rating. Currently priced at $117.31, the average target price of $144.63 suggests a potential upside of over 23% in the coming year.
In summary, while Super Micro faces increasing competition and market share pressures, Dell is positioned for growth and diversification, making it the more favorable investment choice in the AI hardware space according to Mizuho’s analysis.