Dell and Super Micro Computer: Musk's Favorite AI Hardware Stocks

Key Points

• Elon Musk chose two companies to supply his next AI venture with hardware that would fit his future ambitions. 
• Dell and Super Micro Computer were his top choices, and the market and analysts agreed with this decision. 
• Price action and fundamentals stand by these companies to give Elon a point ahead of Buffett. 

Investors can often dissect the reasoning behind some of the world's brightest minds' choices, remembering not to blindly follow them. The investing world is always focused on what mega investors like Warren Buffett or Ray Dalio have been buying or selling lately; however, other gems in other areas should also be kept under watch.

Today, Elon Musk, founder of Tesla Inc. NASDAQ: TSLA, has landed on two companies to keep pushing his ambitions in the technology sector. After having a successful electric vehicle (EV) company, a reusable rocket company that is SpaceX, and even owning one of the most important social platforms (X, formerly Twitter), Elon is now looking to expand his presence in artificial intelligence.

To help him get to the top of that space as well, Elon chose both Dell Technologies Inc. NYSE: DELL and Super Micro Computer Inc. NASDAQ: SMCI as his leading hardware suppliers in the coming years. There must be a reason for him to have chosen these names, but here’s what investors want to know if they want to be exposed to Elon’s next successful run.

Super Micro Computer's Rapid Growth Catches Market Attention

While this company may now only hold roughly 5% of the server market globally and 6.3% of the computer manufacturing sector, it is quickly moving up the ranks. Elon wasn’t the only one to notice this rapid growth.

Analysts now have set Super Micro Computer’s forecast to push 43.4% earnings per share (EPS) growth in the next 12 months, which is above peers like NetApp Inc. NASDAQ: NTAP and Western Digital Co. NASDAQ: WDC because of this other Wall Street analysts chose to boost their outlooks as well.

Those at Bank of America saw it fit to boost Super Micro Computer stock’s valuation up to $1,280 a share, daring the stock to rally roughly 39% from where it sits today. Rosenblatt securities took it further with its $1,300 price target, calling for over 40% upside.

If the company’s hardware was good enough for Elon, it was even better for the Vanguard Group (Super Micro Computer’s largest shareholder). The asset manager decided to increase its stake in the company by 25.7% in the past quarter, bringing its net investment to $6.3 billion today.

Considering that the stock only trades at 75% of its 52-week high prices, investors now have a wide gap to fill in the middle of the biggest artificial intelligence hype market there has ever been, another reason why markets feel comfortable with the stock’s valuations today.

Trading at a forward P/E ratio of 27x puts Super Micro Computer above Western Digital’s 9.2x and NetApp’s 17.8x. Stocks tend to trade at premiums to peers for a good reason, and Elon just gave the markets the biggest one.

Dell's Growth Marks Elon's Victory Over Buffett

It may not be a win against Buffett’s multi-decade track record, but it is one in the short term. Buffett chose to buy shares of HP Inc. NYSE: HPQ, but Elon won the growth (and apparently the AI) battle this time.

Wall Street analysts forecast EPS growth of over 29% for Dell stock this year. For HP, Wall Street only sees 7.5% for the period. Taking another comparison with Cisco Systems Inc. NASDAQ: CSCO, investors can see how Dell comes out on top since analysts forecast a decline of 7.6% in EPS for that stock.

Is the market buying these projections and, by extension, Elon’s choice for AI hardware supplies? It's time to check these future EPS valuations today.

Dell’s forward P/E ratio of 15.5x is justified by its superior earnings growth rate for the future, a trend opposite to that of its competitors today. Cisco stock only trades at 13.2x forward P/E to fall below Dell, a characteristic of HP stock shares.

Buffett’s choice, HP, trades at the lowest forward P/E, at only 9.8x, falling behind Dell by 36.5%. A discount may be the secret behind Buffett’s strategy, but Elon is after tapping the massive growth that is to come from AI trends.

Bank of America analysts joined Elon’s party. They boosted Dell stock’s price target to $180 a share, or 22% above today’s stock price. Those at Loop Capital saw a valuation of $185 instead, daring the stock to rally by 25% instead.