Can Dell gain from recent SMCI weakness? Evercore weighs in

Dell may be positioned to capitalize on recent challenges faced by Super Micro Computer (NASDAQ:SMCI), Evecroce ISI analysts suggested in a Wednesday note.

With the competitive landscape for AI servers intensifying, Dell Technologies Inc (NYSE:DELL) stands to gain from customers seeking alternative suppliers, especially in the context of ongoing supply chain diversity and service capabilities.

Evercore highlights that Dell is uniquely positioned to gain market share in the AI server space, particularly as key customers, such as CoreWeave and various companies associated with Elon Musk’s companies, are dual-sourcing their production across both Dell and SMCI.

The firm analysts believe that Dell remains “a logical partner for customers who look for better/different supply chain diversity and crucially, a strong services offering through the deployment lifecycle,” analysts wrote.

Evercore projects Dell’s AI server revenues to exceed $8 billion this year, and surpass $10 billion in 2025. The focus for Dell, however, extends beyond just revenue growth; the company is also emphasizing the importance of maintaining acceptable EBIT margins and cross-selling various solutions, including networking, storage, and services, to its customer base.

The AI server market itself is experiencing robust growth, reaching approximately $30 billion in 2023, driven by the adoption of accelerator-based servers that utilize parallel processing.

Looking ahead, Evercore projects the market to grow at a compound annual growth rate (CAGR) in the mid-to-high teens, potentially reaching over $56 billion by 2027. Growth is expected to be led by tier 1 hyperscalers and tier 2 cloud service providers in the near term, with enterprise AI adoption contributing to the longer-term expansion.

Dell’s advantage in this competitive market is further bolstered by its comprehensive service offerings, which include engineering support, management, maintenance, and financial services.

Analysts also emphasize that “services related to AI-server deployments (co-design, installation, and maintenance, etc.) is a key reason why Dell is winning business in both tier-2 and enterprise customer cohorts.”

Moreover, as the customer mix shifts from tier-2 cloud service providers to enterprises and corporate customers, Dell’s ability to attach services to its hardware offerings is expected to contribute to margin accretion – a strategy seen as a key factor in Dell’s continued success in the AI server market.

Evercore maintains its “Outperform” rating on Dell, with a target price of $140.

Driven by AI demand, the company’s shares surged more than 43% this year, outperforming the broader market.