Dell Positioned to Capitalize on Super Micro’s Challenges

Dell may be positioned to capitalize on recent challenges faced by Super Micro Computer (NASDAQ:SMCI), according to Evercore ISI analysts in a Wednesday note.

Competitive Landscape

As the competitive landscape for AI servers intensifies, Dell Technologies Inc (NYSE:DELL) stands to gain from customers seeking alternative suppliers, particularly amidst ongoing supply chain diversity and enhanced service capabilities.

Evercore highlights that Dell is uniquely established to capture market share in the AI server space. Key customers such as CoreWeave and companies linked to Elon Musk are dual-sourcing their production from both Dell and SMCI.

The analysts noted that Dell is “a logical partner for customers who look for better/different supply chain diversity and crucially, a strong services offering through the deployment lifecycle.”

Revenue Projections

Evercore anticipates Dell’s AI server revenues will exceed $8 billion this year, with projections of surpassing $10 billion by 2025. Dell’s focus extends beyond just revenue growth; it is also keen on maintaining acceptable EBIT margins while cross-selling networking, storage, and services.

Market Growth

The AI server market is expected to reach approximately $30 billion in 2023 fueled by the adoption of accelerator-based servers that employ parallel processing. Evercore projects the market will grow at a CAGR in the mid-to-high teens, potentially exceeding $56 billion by 2027.

This growth is likely to be driven by Tier 1 hyperscalers and Tier 2 cloud service providers, with enterprise AI adoption playing a significant role in long-term expansion.

Dell’s Competitive Advantages

Dell’s strong position in this competitive market is enhanced by its comprehensive service offerings, including engineering support, management, maintenance, and financial services. Analysts stress that services related to AI-server deployments (co-design, installation, and maintenance) are critical factors for Dell’s success among tier-2 and enterprise customers.

As the customer mix evolves from tier-2 cloud service providers to enterprises and corporate clients, Dell’s ability to attach services to its hardware offerings is expected to enhance margins, which is deemed a key factor in its ongoing success in the AI server market.

Analyst Ratings

Evercore maintains its “Outperform” rating on Dell, setting a target price of $140. The company’s shares have surged over 43% this year due to AI demand, outperforming the broader market.