Elon Musk just gave Super Microcomputer and Dell investors a reason to cheer.

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Artificial intelligence (AI) has been the dominant theme in the markets for the past two years.

Naturally, iconic entrepreneur Elon Musk has found himself at the center of the AI ​​revolution — and he's given investors one big reason to consider both seriously. Dell Technologies (NYSE: DELL) And Super Microcomputer (NASDAQ: SMCI ).

Let's explore how Musk is working with these AI leaders, and gauge whether these stocks are a good buy right now.

What did Elon Musk just say?

In addition to running Tesla and social media platform X (formerly Twitter), Musk is also managing an AI startup, called xAI.

xAI is building a chatbot called Grok, and it aims to compete with the likes of OpenAI. Musk co-founded OpenAI but left the project back in 2018. Since his departure, Musk has had several well-known spats with OpenAI CEO Sam Altman over security concerns and how AI should be used in society.

In early June, Musk revealed that xAI would use a series of AI chips. Nvidia. The entrepreneur followed up the announcement with another interesting development.

Namely, Musk went from X to tell investors and AI enthusiasts that xAI will partner with Dell and Supermicro to build its own AI infrastructure, such as server rack solutions and factory architecture.

How Dell and Super Micro benefit.

AI has many different components. One of the biggest bellwethers for AI right now are specialized chips called graphics processing units (GPUs). These chips are used to train large language models and other computing functions to develop creative AI applications.

Currently, Nvidia is the undisputed 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 like Dell and Super Micro specialize in a different area in the chip realm.

Both Dell and Super Micro are major players in AI infrastructure solutions. Primarily, both companies specialize in designing integrated systems architectures, server racks, and storage clusters for data centers.

Considering xAI just returned $6 billion in funding in May, Dell and Super Micro seem well-positioned to take advantage of AI tailwinds as xAI moves quickly to catch up to the competition. are growing

Image source: Getty Images.

Dell, Super Micro, both, or both?

On the surface, owning different businesses in the semiconductor landscape might be a good idea. AI is still in its infancy, and chip companies have many different applications that are contributing to the technology's development.

At the same time, a closer look at valuation should shed some light on investments in Dell and Super Micro in particular.

DELL PE RATIO CHART

The chart above illustrates the price-to-earnings (P/E) multiples for Dell and Super Micro over the past few years. While neither stock looks cheap, Dell is clearly trading at a significant discount to Super Micro. At the same time, Super Micro's premium is warranted considering how fast the company is growing.

Additionally, my biggest knock against Supermicro has been the company's heavy reliance on Nvidia's business — a dynamic that could hurt the company in the long run as more companies design competing chips.

Now, with approval from Musk and xAI, I'm more optimistic about Supermicro's chances of branching out and earning meaningful business from new customers in the AI ​​space.

At the end of the day, allocating a portion of your AI holdings to both Dell and Super Micro could be a good idea for long-term investors. If I had to pick just one company, I think Dell is a better value than Supermicro based on its lower P/E and diversified business. Given Super Micro is still relatively small, I think its valuation needs 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 and recommends Nvidia and Tesla. The Motley Fool has a Disclosure Policy.

Elon Musk just gave Super Microcomputer and Dell investors a reason to be happy was originally published by The Motley Fool.

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