And you thought space was the final frontier.

Star Trek fans know that each episode of the iconic science fiction show began with Captain Kirk solemnly declaring that outer space was the last unexplored region.

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But that was before anyone--aside from the Trekkies-- knew anything about artificial intelligence.

Now, this extremely new frontier promises to rewire the future and turn much of the tech in sci-fi shows into real-world technology.

Two of the bigger names in the AI realm came under scrutiny on Sept. 16 in the form of a research report from Mizuho Financial Group.

In a note entitled "Delivering the AI Punch," analyst Vijay Rakesh initiated coverage of Dell Technologies  (DELL)  and Super Micro Computer  (SMCI) .

"Generative AI is igniting growth and disruption across multiple markets, pushing the frontiers of innovation and productivity," Rakesh said, referring to the type of AI capable of generating text, images, videos, or other data using generative models.

"AI servers comprise the infrastructure enabling the AI revolution, and we see two major server OEMs spearheading this future: SMCI and DELL," he said.

Analyst starts coverage for Dell and Super Micro Computer amid $406 billion opportunity

Rakesh kicked off coverage of Dell with an outperform rating and a $135 price target while giving Super Micro a neutral rating and a $450 price target.

The analyst said that the market for AI servers—specialized computing systems designed to handle the demands of AI workloads—is projected to reach roughly $406 billion by the end of 2027, growing at about a 54% compound annual growth rate.

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This growth will be driven by enterprise demand and cloud service providers, including the dominant hyperscalers and slightly smaller Tier 2 companies.

While the market is growing, Rakesh noted that increased competition is hitting margins.

AI server margins could compress more if 2025-26 server architectures are slow to adopt liquid cooling, preferring cheaper air-cooled (AC) AI servers, and as the supply of industry GPUs, or graphic processing units, improves.

Liquid cooling servers use less power and water than air cooling servers, but they require large capital investments upfront.

The stocks of companies with diverse portfolios benefit more, especially if margins compress even further if server architectures are slow to adopt liquid-cooling servers and if GPU supply improves.

AI is a secular driver, but the analyst said Dell's diversification across PC/storage generates synergies and longer-term value.

"While SMCI has led the market with a head start from tight GPU supply, it is losing share with DELL quickly gaining share by leveraging relationships as the overall server market leader, we would note peer HPE (NC) is an Enterprise/Sovereign AI server supplier," Rakesh said.

The analyst said that he believes Super Micro is seeing share loss, margin pressure, negative free cash flow, and lax internal control issues. At the same time, he thinks Dell is better positioned with a broader server/PC/storage portfolio, a better balance sheet with solid free cash flow, and working capital management.

Dell executive cites server demand

Dell beat Wall Street's second-quarter earnings expectations thanks to soaring server sales.

AI sales are in Dell’s Infrastructure Solutions Group, which makes servers and systems for data centers and is the company’s fastest-growing unit. The group's overall sales jumped 38% to $11.65 billion, beating Wall Street’s call for $10.44 billion.

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“Our AI momentum accelerated in Q2, and we've seen an increase in the number of enterprise customers buying AI solutions each quarter,” Jeff Clarke, vice chairman and chief operating officer, said in a statement. “AI-optimized server demand was $3.2 billion, up 23% sequentially, and $5.8 billion year-over-year. Backlog was $3.8 billion, and our pipeline has grown to several multiples of our backlog.”

More recently, Dell said in a regulatory filing that it expected additional job cuts. It's limiting external hiring, reorganizing employees, and taking "other actions to align our investments with our strategic priorities and customer needs."

"We anticipate these actions will result in a continued reduction in our overall headcount," the filing said. "We believe our unique operating advantages provide a foundation to foster growth, drive efficiencies, and continue to position us for long-term success."

While overall net revenue grew, the pricing environment became increasingly competitive, which primarily affected the gross margin performance of the company’s Client Solutions Group.

Dell said that it expects the group to see modest net revenue growth for the full fiscal year driven by the timing of the anticipated PC refresh cycle.

Last month, short-seller Hindenburg Research released a scathing report on Super Micro, claiming it had “found glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.”

The report said that companies like electric vehicle maker Tesla  (TSLA)  and AI chip heavyweight Nvidia  (NVDA)  are switching from Super Micro to Dell.

Hindenburg noted that Nvidia CEO Jensen Huang said, "Nobody is better at building end-to-end systems of very large scale for the enterprise than Dell.”

One day after the Hindenburg report was released, Super Micro said that it would not file its annual report on SEC Form 10-K for the fiscal year ending June 30 on time and expected to file a late filing notification.

In early August, Super Micro Computer missed analyst estimates for its fiscal fourth quarter and offered mixed guidance for the current period.

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