The AI server boom that once was loading US-branded server stocks has lost steam and Wall Street is not excited.
JPMorgan analyst Samik Chatterjee is watching Dell Technologies Inc install a recent challenge Dell Hewlett Packard Enterprise Co HPEhowever, he is with Dell as a better bet on this AI reset.
AI server party will fall
For months, the AI server has been Golden Goose, but concerns are growing. Chatterjee outlines four important issues:
Margin pressure from advanced AI calculation configurations, more competitive situations with HPE and Lenovo rising, Nvidia Corp supply constraints NVDA Suspicions regarding the AI training intensity following Blackwell’s shipment and Deepseek’s recent innovations.
result?
Dell has dropped 8% since the start of the year, down 26% from its recent high, but HPE remains flat.
Super Micro Computer Inc SMCIwhich had been riding the wave of AI early, but increased by 19%, but faced its own supply and competitive hurdles.
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Dell: AI hangover, but wider recovery is approaching
Dell was assaulted as AI server revenue expectations cooled and spending is widely dependent. Chatterjee’s forecast shows that Trim’s consensus revenue growth will grow from high single digits to 4%, while EPS growth will grow from 19% to 11%. However, Dell’s valuation is just 12 times more advanced revenue, which appears to include negative risks.
JPMorgan believes that traditional IT spending is picking up the possibility of turnarounds later in the year.
In the fourth quarter, Dell’s revenue is expected to be slightly above the consensus, with revenues of $24.8 billion (+11%) and EPS of $2.60 (against the $2.52 consensus). However, first quarter guidance appears softer, with forecast revenues of $23 billion (+3% year-on-year) and $1.55 EPS below the consensus at $1.80.
A big challenge? AI server revenues are easing, but traditional IT demands don’t bounce fast enough.
HP Enterprise: AI Server Optimism floats it
HPE was better in 2024 thanks to Elon Musk’s optimism over his famous deal with Xai. But that doesn’t mean it’s clear. AI server revenue is expected to decline in the short term as Blackwell supply is limited and demand for hopper-based systems is waning.
HPE should reach a consensus estimate with revenue of $7.8 billion (+15%) and EPS of $0.49. However, the second quarter guidance could be disappointing, with revenues of $7.8 billion (+9% year-on-year) and an EPS of $0.46, tracking the $0.50 consensus.
HPE will benefit from the strength of hybrid clouds, but it is not expected that the momentum of AI servers will repeat early in FY2023.
Verdict: Dell on HPE
JPMorgan admits that both companies face headwinds, but Dell stock has already absorbed much of its AI server reset. HPE has XAI wins by keeping sentiment high, but Dell’s wider corporate IT recovery will give you a stronger upside down story towards the second half of 2024.
Conclusion?
The AI server trend is cooled, but to those looking to set a rebound position, Dell looks like a more risky bet.
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