Artificial intelligence (AI) investing covers a broad range of companies, including hardware, software, end users, and many that cover a large part of this spectrum. On the hardware side, Nvidia (NASDAQ: NVDA) has reigned supreme as the top stock. However, there are other ways to invest in this space.
Companies like Super Micro Computer (NASDAQ: SMCI) and Dell (NYSE: DELL) make hardware for servers that run these intense AI calculations and are critical in the AI value chain. But which is a better investing buy for 2025? The answer may surprise you.
You’re likely familiar with Dell, as you’ve probably seen a commercial or used one of its laptops or desktops. However, that part of the business isn’t what I’m talking about here. Dell also makes servers that can be used for a wide variety of computing tasks, but the most noteworthy for investors right now is AI.
Super Micro Computer (or Supermicro) is also in this space but represents a more premium option than Dell. Supermicro’s servers are highly configurable for workload size and are cutting edge with their liquid-cooled technology, which delivers up to 40% energy savings and allows them to be placed in a much smaller room because less airflow is needed.
Both companies are viable options in this space, but which one is doing better?
Dell is a tale of two companies, as it has its PC business (client solutions group) as well as the server segment (infrastructure solutions group). These two segments are performing directly opposite of each other, which drags down Dell’s overall performance.
Segment
Q3 FY 2025 Revenue
Year-Over-Year Q3 FY 2025 Revenue Growth
Infrastructure Solutions Group
$11.4 billion
34%
Client Solutions Group
$12.1 billion
(1%)
Total
$24.4 billion
10%
Data source: Dell. Note: Q3 FY 2025 ended Nov. 1.
Clearly, the infrastructure solutions group is driving the business, and chief operating officer Jeff Clarke had this to say about the division:
Interest in our portfolio is at an all-time high, driving record AI server orders demand of $3.6 billion in Q3 and a pipeline that grew more than 50%, with growth across all customer types.
That’s pretty definitive, and it’s clear that Dell’s infrastructure group will continue to see success.
But Supermicro is also strong, if you can trust what management says.
The Supermicro investment thesis isn’t as straightforward as Dell’s, as Supermicro has been caught up in accounting malpractice allegations for the past couple of months, which has depressed its stock. This included a short-seller report, a probe by the Department of Justice, and its auditor resigning, which is often a telltale sign of trouble.
However, a third-party special committee led by a forensic accounting firm found “no evidence of misconduct.” This cleared Supermicro’s name, but there is still some distrust in the business, as this wasn’t the first time Supermicro’s accounting practices came under scrutiny.
Supermicro still hasn’t published finalized Q1 FY 2025 (ended Sept. 30) results, as it is waiting for its new auditor to sign off on them, but management did provide an update. The company expects revenue between $5.9 billion and $6 billion, indicating 181% growth at the midpoint. However, this did not meet the expectations laid out in Q4, as management guided between $6 billion and $7 billion in revenue.
Furthermore, Q2 revenue is expected to be between $5.5 billion and $6.1 billion, which would indicate revenue falling quarter over quarter at the midpoint. That’s not a good sign, considering that nobody in the industry has forecast a slowdown in AI spending. Part of this could be because some clients (like Nvidia) are allegedly shifting orders around due to Supermicro’s inability to meet demand. This bears watching throughout the year.
From a valuation standpoint, it’s basically a wash. Each of these two companies trades for nearly the exact same price-to-forward-earnings valuation.
With Supermicro growing faster, one could argue that it is the cheaper stock. But that all depends on your trust in management.
At the end of the day, Supermicro may be in the clear, but I find it hard to continue to invest in them after a lot of turmoil. Dell is also a tough one because its client solutions group is not doing well. As a result, I think investors are better off investing in the tried-and-true AI hardware company: Nvidia.
It’s easy to overthink investment ideas, and buying one of these two instead of Nvidia is one way of overthinking this trend.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
