Dell & HP: As AI server hype cools down, JPMorgan favors Dell -Dell Technologies (NYSE: DELL)

The AI ​​server boom that once had investors piled up in U.S. branded server inventory is losing Steam, and Wall Street is not excited.

JPMorgan analyst Samik Chatterjee sees recent challenges Dell Technologies Dell and HP Packard Enterprise Co HPEbut next to him with Dell is the better bet for AI reset.

AI Server Party End

For months, AI servers have been a golden goose, but worrying. Chatterjee outlines four key issues:

1. Margin pressure in advanced AI computing configurations,
2. The competitive landscape intensified by HPE and Lenovo is more competitive,
3. Supply Limits NVIDIA CORP‘ NVDA Blackwell’s cargo and
4. Doubts about the intensity of AI training DeepSeekRecent innovation.

result?

Dell fell just 8% year-on-year, down 26% from its recent high, while HPE remained flat.

Super Microcomputer Company SMCIRiding the AI ​​wave early, YTD grew 19% but facing its own supply and competition barriers.

Also read: If you invested $100 in this stock 5 years ago, you will have a lot today

Dell: AI Hangover, but wider recovery is imminent

Dell suffered a beating as AI server revenues are expected to cool down and wider spending remains dull. Chatterjee’s forecasts will increase consensus revenue from a brilliant figure to 4%, and earnings per share will increase from 19% to 11%. However, since Dell is only 12 times the valuation, it seems to include downside risks.

JPMorgan sees potential for turnaround later this year, as traditional spending can increase.

In the fourth quarter, Dell’s revenue is expected to be slightly consensus, with revenue of $24.8 billion (+11%) and earnings per share of $2.60 (with consensus of $2.52). However, the guidance for the first quarter looked softer, with estimated revenue of $23 billion (about 3%) and earnings per share of $1.55, which is below consensus below $1.80.

A bigger challenge? AI server revenue is adjusting, while traditional demand does not bounce fast enough.

HP Enterprise: AI Server Optimism

HPE performs better in 2024, partly due to optimism about its high-profile agreement Elon MuskXai. But that doesn’t mean it’s clear. AI server revenue is expected to decline in the near term due to limited supply of Blackwell and weaker demand for hopper-based systems.

In the first quarter, HPE should meet a consensus estimate with revenue of $7.8 billion (about 15%) and earnings per share of $0.49. However, the second-quarter guidance could be disappointing, with revenue expected to be $7.8 billion (+9%) and earnings per share of $0.46, lagging behind $0.50.

Although HPE benefits from hybrid cloud strength, its AI server momentum is not expected to repeat early in FY25.

Verdict: Dell on HPE

JPMorgan admits that both companies are facing headwinds, but Dell’s stock has absorbed most of the resets of AI servers. Despite HPE’s victory at Xai, Dell’s broader enterprise IT recovery makes its upward story stronger by the second half of 2024.

Bottom line?

The AI ​​server boom is cooling down, but Dell seems to be a riskier bet for those looking to position the rebound.

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