The stock market made a stunning comeback after President Donald Trump posted on Truth Social that he is pausing tariffs on all countries except China for 90 days. The administration claims this is a win as 75 countries have reached out for negotiations, though Trump later said on TV that he paused the tariffs as many people were getting afraid and “yippy.”
Stocks that plunged in the past few weeks are yet to make a full recovery, but the juicy double-digit gains in growth stocks do raise the question of whether or not they are still worth buying the dip on. After all, universal 10% tariffs are still in effect, and there is an ongoing and escalating trade war with China. These tariffs could again be a problem in 90 days. Supermicro (NASDAQ:SMCI) fell earlier due to tariff concerns. But now that they are temporarily out of the way and SMCI stock has staged a recovery.
Many investors are still split since there are plenty of competitors in the data center sector that are trading at similar levels. Should you still buy the DIP on SMCI, or should you go for its competitors?
Let’s take a look at SMCI first.
Super Micro Computer is relatively insulated from tariffs. The company previously had exposure to China as it imported most of its motherboards but has since spread out its manufacturing. JPMorgan said that Supermicro would only have to increase its global prices by 4%.
The current administration seems friendly to AI, and Supermicro is a major supplier of servers and AI infrastructure. Demand for its specialized products is growing, and direct liquid cooling (DLC) is expected to see solid growth due to the demand for managing heat in data centers. It projects revenue of $23.5 billion to $25 billion for fiscal year 2025 and $40 billion for fiscal year 2026.
There’s plenty of growth and demand here to offset the hit from tariffs.
This is a solid growth bet and does trade at a cheap valuation if you just look at the top line. Supermicro has also managed to survive the Hindenburg drama and avoid a Nasdaq delisting. And considering it is down 68% from its peak, it may look very attractive at current levels.
But does that warrant a buy now? I’d say yes.
But first, consider Dell (NYSE:DELL) instead. Supermicro’s bottom line is not expected to grow as fast as the top line, and you’re still paying 8 times FY2027 earnings. At 9 times forward earnings for this year’s earnings, you could instead buy DELL, which has a broader portfolio and is a more stable stock with lower maximum drawdowns. DELL also pays a dividend. Meanwhile, SMCI is slightly dilutive. Outstanding shares grew from 518.7 million in Q1 2022 to 593.5 million in Q4 2024.
Dell is more vulnerable to tariffs (Dell would need to raise global prices by 11%), but current prices take that into account.
SMCI has been missing EPS estimates.
Dell has been beating them.
Supermicro’s EPS expectations have also been trended down over the past month. The same can be said for Dell, but not to this degree.
Analysts now have a consensus price target of $53 with a consensus “Hold” rating. The price target implies a 44.4% upside from here. On the other hand, DELL has a “Moderate Buy” consensus rating and a $141.24 price target from analysts, which implies a 67.8% upside potential.
I’d go with Dell in the current environment. There are plenty of macro problems, and stagflation concerns are still here and can hurt more aggressive picks like SMCI. Dell is a safer pick that you can buy for cheaper, and with more upside potential.
Plus, DELL does not come with SMCI’s baggage of accounting issues and the management change that has followed. SMCI is yet to fully recover investor confidence after delaying its earnings reports for so long.
