Look out, Super Micro - Dell is gaining steam, and its stock could keep soaring

By Emily Bary

An analyst sees Dell getting more competitive with its rival

Shares of Dell Technologies Inc. are near record territory, and one analyst sees plenty of reasons why their momentum can continue.

Melius Research's Ben Reitzes thinks Dell (DELL) is picking up market share in servers - and has room to keep doing so as it receives more graphics processing units from Nvidia Corp. (NVDA), gains more traction with its liquid-cooling offerings and becomes more competitive at winning larger customers.

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While Dell shares are up 217% in the past year in large part due to traction for its servers that meet artificial-intelligence use cases, rival Super Micro Computer Inc. (SMCI) has seen its stock jump more than 800% in that span. Reitzes thinks Dell can improve its positioning in the eyes of customers and investors.

"Signs point toward Dell having won more orders from Tier 2 clouds and amajor private AI company recently," he wrote. "Also, our checks point toward large customers increasingly seeking out Dell's full services and support to adequately handle acute AI processing needs - allowing it to compete more effectively with Super Micro."

Super Micro is well known for its liquid-cooling offerings that help account for the tremendous power usage of AI servers. Reitzes noted that Wall Street isn't as familiar with Dell's offerings in liquid cooling, but "both companies are well positioned for this surge that will be catalyzed by Blackwell," referring to the new chip lineup that Nvidia debuted last month.

Despite the sharp recent rally in Dell shares, Reitzes thinks the AI-hardware trade has only just begun.

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"We think we are still in the early stages of a generational shift where money flows out of expensive (and stock-option heavy) application-software companies, and into picks and shovels for AI," he said. "While this shift has already been led by Nvidia, it could go on for a while."

Whereas Dell and its hardware peers were once viewed as to be "eaten" by software, now hardware seems like a safer bet in Reitzes' view. "As a result, a 15x-plus [earnings-per-share multiple] for a hardware company like Dell, who is increasingly on the right side of AI, is just fine to us," he added.

He further noted that there's a chance Dell's stock could gain entry into the S&P 500 SPX in the coming year. Inclusion in the index helped propel Super Micro's stock earlier this year.

Reitzes has a buy rating and $152 target price on the stock.

-Emily Bary

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04-08-24 1257ET

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