One of the most important themes in the markets over the past two years has been artificial intelligence (AI).
Naturally, famous entrepreneur Elon Musk has found himself at the center of the AI ​​revolution – and he’s just given investors a good reason to seriously consider both Dell Technologies (NYSE:DELL) And Super microcomputer (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?
In addition to running You’re here and social media platform X (formerly Twitter), Musk also runs a AI startup called xAI.
xAI is building a chatbot called Grok and aims to rival OpenAI. Musk is a co-founder of OpenAI but left the project in 2018. Since his departure, Musk has had numerous high-profile spats with OpenAI CEO Sam Altman over security issues and how AI should be used in society.
In early June, Musk revealed that xAI will use a series of AI chips Since NvidiaThe entrepreneur followed this announcement with another exciting development.
Namely, Musk took to X to tell investors and AI enthusiasts that xAI would partner with Dell and Supermicro to build its AI infrastructure such as server rack solutions and factory architecture .
How Dell and Supermicro Could Benefit
Artificial intelligence (AI) is made up of many different components. One of the most important indicators of AI today is specialized chips called graphics processing units (GPUs). These chips are used to train large language models and other computing functions to develop generative AI applications.
Currently, Nvidia is the undisputed leader in AI chips, holding an estimated 80% market share.
However, deploying chips in machine learning models and other use cases is only part of the larger equation. Companies like Dell and Supermicro specialize in another area within the chip world.
Both Dell and Supermicro are major players in AI infrastructure solutions. Essentially, both companies specialize in designing integrated system architectures, server racks and storage clusters for data centers.
Given that xAI just raised $6 billion in funding in May, Dell and Supermicro appear well positioned to benefit from AI tailwinds as xAI quickly moves to catch up with the competition.
Dell, Supermicro, both or neither?
At first glance, owning different companies in the semiconductor industry might be a good idea. AI is still in its infancy and many different applications among chip makers play a role in the development of this technology.
That said, a careful look at valuation should shed light on investing in Dell and Supermicro in particular.
The chart above illustrates the price-to-earnings ratio (PER) of Dell and Supermicro over the past few years. While neither stock looks cheap, Dell is clearly trading at a notable discount to Supermicro. That being said, Supermicro’s premium is arguably justified given how quickly the company is growing.
Additionally, one of my biggest gripes with Supermicro has been that the company is heavily dependent on Nvidia’s business – a dynamic that could hurt the company in the long run as more companies design chips competitors.
Now, with Musk and xAI’s endorsement, I’m more optimistic about Supermicro’s prospects of diversifying and winning significant business from new customers in the AI ​​space.
Ultimately, allocating some of your AI holdings to Dell and Supermicro could be a good idea for long-term investors. If I had to pick just one company, I think Dell offers the best value compared to Supermicro, due to its lower P/E and diversified business. Given that Supermicro is still relatively small, I think its valuation needs to continue to normalize before it looks like a bargain opportunity.
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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 Just Gave Super Micro Computer and Dell Investors a Reason to Rejoice was originally published by The Motley Fool
