SMCI vs. HPE: Which Stock Has an Edge in the Server Space?

Industry Overview - The global server market is projected to grow at a CAGR of 9.8% from 2024 to 2030, driven by strong adoption across various industries including healthcare, retail, BFSI, manufacturing, and education [1] Super Micro Computer (SMCI) - SMCI's growth is primarily fueled by the increasing demand for artificial intelligence (AI) workloads, with a significant rise in data centers and their capacity [3] - The company's next-generation air-cooled and liquid-cooled GPU and AI platforms are contributing over 70% to its revenue in Q4 of fiscal 2025 [4] - SMCI is currently facing challenges such as delayed purchasing decisions from customers and margin contraction due to price competition and inventory write-downs [5][6] - The Zacks Consensus Estimate indicates a decline in SMCI's EPS for the first and second quarters of fiscal 2026 by 37% and 5% respectively, with downward revisions for fiscal 2026 and 2027 EPS in the past 60 days [7] Hewlett Packard Enterprise (HPE) - HPE's server business experienced a 16.1% growth in Q3 of fiscal 2025, reaching an all-time high, driven by large AI deals and a significant increase in AI systems revenues to $1.6 billion [8][9] - The company reported a 100% quarter-over-quarter increase in orders for its AI server business, with improved operating margins due to pricing reforms [10] - HPE's newly launched ProLiant Gen 12 server platform enhances performance, security, and cooling technology, strengthening its competitive position [11] - HPE has raised its non-GAAP net earnings per share estimates to $1.88-$1.92, reflecting upward revisions in the consensus estimates for fiscal 2025 and 2026 [12] Stock Performance and Valuation - Year-to-date, SMCI shares have increased by 47.6%, while HPE shares have risen by 15.8% [13] - SMCI is trading at a forward 12-month ratio of 0.84X, slightly above its median, while HPE is at 0.83X, also above its median [14] Conclusion - HPE is considered a more compelling investment option due to its strong server portfolio and growth prospects, while SMCI faces near-term challenges related to customer purchasing delays and margin pressures [16] - HPE currently holds a Zacks Rank 2 (Buy), whereas SMCI has a Zacks Rank 3 (Hold) [17]