SMCI vs. DELL: Which Server Stock is the Better Buy Now?

Industry Overview - The global server market is projected to grow at a CAGR of 9.8% from 2024 to 2030, driven by the rapid adoption of servers across various industries such as healthcare, retail, BFSI, manufacturing, and education [1]. Super Micro Computer (SMCI) - SMCI is experiencing strong adoption of its high-performance and energy-efficient servers, particularly among AI data centers and hyperscalers, with server and storage system revenues growing 19% year over year in Q3 of fiscal 2025, surpassing $4.5 billion [3][9]. - The company's revenues are bolstered by direct liquid cooling products, with production exceeding 2000 DLC racks per month, and recent product launches aimed at AI workloads [4]. - Despite the growth, SMCI faces near-term challenges, including delayed purchasing decisions from customers evaluating next-generation AI platforms and margin contraction due to price competition [5][6]. - SMCI revised its fiscal 2025 revenue guidance down to a range of $21.8 billion to $22.6 billion, with a Zacks Consensus Estimate of $22.12 billion, indicating a 48% year-over-year growth [7]. Dell Technologies (DELL) - DELL reported record server sales of $6.3 billion in Q1 of 2026, reflecting a 16% year-over-year growth, and has a significant AI backlog of $14.4 billion [10][9]. - The adoption of DELL's AI servers is driven by enterprise demand across various sectors, with a focus on custom and modular solutions that facilitate easier deployment [11][12]. - DELL anticipates fiscal 2026 revenues between $101 billion and $105 billion, with a Zacks Consensus Estimate of $103.53 billion, indicating an 8.33% year-over-year growth [14]. Stock Performance and Valuation - Year-to-date, SMCI shares have increased by 45.4%, while DELL shares have gained 1.1% [16]. - SMCI is trading at a forward Price to Sales ratio of 1.28X, slightly above its median, while DELL is at 0.85X, below its median, making DELL's stock more attractive [17]. Conclusion - DELL is positioned as a more compelling investment option due to its lower valuation and strong prospects in the server market, particularly with its AI servers, while SMCI is currently facing challenges related to customer purchasing delays and margin pressures [18][19].