SMCI vs. HPE: Which Stock Has an Edge in the Server Space?

Hewlett Packard Enterprise (HPE) is demonstrating stronger performance in the server market, reporting an all-time high 16.1% growth in its server business for fiscal Q3 2025, driven by AI deals, and subsequently raising its FY25 EPS guidance with upward revisions for FY25/26. Conversely, Super Micro Computer (SMCI), despite benefiting from AI demand, is contending with near-term challenges including customer purchasing delays, margin contraction due to pricing pressure, and recent downward revisions to its FY26/27 EPS estimates. The analysis suggests HPE presents a more compelling investment case due to its robust portfolio and improved margins, positioning it favorably against SMCI's current operational headwinds.

Analysis

Hewlett Packard Enterprise (HPE) is demonstrating superior operational execution and financial momentum within the AI-driven server market compared to Super Micro Computer (SMCI). HPE posted a 16.1% year-over-year increase in server revenue in its fiscal third quarter, reaching an all-time high, driven by a 100% quarter-over-quarter surge in AI server orders and $1.6 billion in AI systems revenue. Consequently, HPE has raised its non-GAAP EPS guidance for fiscal 2025 to $1.88-$1.92, supported by upward revisions to consensus estimates for both fiscal 2025 and 2026. This positive trajectory is attributed to pricing reforms that improved server operating margins and the launch of its ProLiant Gen 12 platform. Conversely, while SMCI benefits from strong demand for its AI platforms, which contribute over 70% to its top line, it faces significant near-term headwinds. These include margin contraction from pricing pressure, a one-time inventory write-down, and customer purchasing delays. Reflecting these challenges, Zacks Consensus Estimates for SMCI's EPS have been revised downward for fiscal 2026 and 2027, with near-term quarterly estimates projecting declines. Despite SMCI's stronger year-to-date stock performance (+47.6% vs. HPE's +15.8%), both companies trade at nearly identical forward sales multiples (0.84x for SMCI, 0.83x for HPE), suggesting HPE offers a more compelling risk-reward profile given its current fundamental strength and clearer outlook.

Key Decisions for Investors

• Given Hewlett Packard Enterprise's strong server revenue growth, improving margins, and upwardly revised EPS guidance, investors may find it to be a more favorably positioned asset in the server sector at this time.
• Investors holding Super Micro Computer should monitor for stabilization in gross margins and a resumption of customer order velocity, as the current downward EPS revisions and pricing pressures present significant near-term risks.
• Considering their similar forward sales multiples, a relative value strategy could favor HPE over SMCI, as HPE's current valuation does not appear to reflect its superior operational momentum and more positive earnings outlook.