One of the biggest themes in the markets over the past two years has been artificial intelligence (AI).
Naturally, famed entrepreneur Elon Musk is at the center of the AI ​​revolution, and he just gave investors a major reason to seriously consider both. Dell Technologies (NYSE: DELL) And Supermicrocomputer (NASDAQ: SMCI).
Let’s explore how Musk is working with these AI leaders, and assess whether these stocks are good buys right now.
What did Elon Musk just say?
Besides running Tesla and social media platform X (formerly Twitter), Musk also heads an AI startup called xAI.
xAI is building a chatbot called Grok, aiming to compete with companies like OpenAI. Musk co-founded OpenAI but abandoned the project in 2018. Since leaving, Musk has been embroiled in a well-publicized spat with OpenAI CEO Sam Altman over security concerns and how AI should be used in society.
In early June, Musk revealed that xAI will use a range of AI chips Nvidia. The entrepreneur followed up this announcement with another exciting development.
Musk went to
How Dell and Supermicro can benefit from this
AI has many different components. One of the biggest precursors to AI right now are specialized chips known as graphics processing units (GPUs). These chips are used to train large language models and other computer functions to develop generative AI applications.
Nvidia is currently the undisputed market leader in AI chips, with an estimated 80% market share.
However, deploying chips in machine learning models and other use cases is only part of the broader equation. Companies such as Dell and Supermicro specialize in a different area within the chip domain.
Both Dell and Supermicro are major players in AI infrastructure solutions. Essentially, both companies specialize in designing integrated system architecture, server racks and storage clusters for data centers.
Considering that xAI just raised $6 billion in funding in May, Dell and Supermicro appear well positioned to benefit from AI tailwinds as xAI moves quickly to catch up with the competition.
Dell, Supermicro, both or neither?
At first glance, owning several companies in the semiconductor space could be a good idea. AI is still in its infancy and there are many different applications at chip companies that play a role in the development of the technology.
That said, a closer look at the valuation should shed light on investments in Dell and Supermicro in particular.
The chart above illustrates the price-to-earnings (P/E) ratios for Dell and Supermicro over the past few years. While neither stock looks cheap, Dell is clearly trading at a significant discount to Supermicro. That said, Supermicro’s premium is arguably justified given how quickly the company is growing.
Furthermore, one of my biggest criticisms of Supermicro is that the company is heavily dependent on Nvidia’s business. This dynamic could hurt the company in the long run as more and more companies design competing chips.
Now, with an approving nod from Musk and xAI, I’m more optimistic about Supermicro’s prospects to expand and earn meaningful business from new customers in the AI ​​space.
Ultimately, it could be a good idea for long-term investors to allocate some of your AI holdings to both Dell and Supermicro. If I had to pick just one company, I think Dell is the better value compared to Supermicro, based on its lower price-to-earnings ratio and diversified business. Since Supermicro is still relatively small, I think its valuation will need to continue to normalize before it looks like a bargain.
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Adam Spatacco has positions in Nvidia and Tesla. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.
Elon Musk Gave Super Micro Computer and Dell Investors Reason to Cheer, originally published by The Motley Fool
