Super Micro Computer SMCI and Hewlett Packard Enterprise HPE are both leading the AI infrastructure space, providing organizations with server-based capabilities that deliver high computing power. Considering the unprecedented growth forecast of the AI market, both companies are likely to capitalize on the emerging trends.
Given this scenario, let's closely examine the fundamentals of the two companies, so investors can make an informed bet.
The Case for SMCI Stock
Super Micro Computer is benefiting from a rapid surge in global AI infrastructure spending, driven by hyperscalers, NeoCloud providers, sovereign AI initiatives, AI factories and enterprise customers as they deploy next-generation AI workloads. SMCI has rapidly transformed from a traditional server manufacturer into a full-stack AI infrastructure and end-to-end data center solutions provider through its expanding Data Center Building Block Solutions portfolio.
However, this approach has also led Super Micro Computer to face inventory-related risks tied to the rapidly evolving AI hardware market. The company recorded inventory valuation adjustment write-downs of approximately $239.3 million during the first nine months of fiscal 2026, largely related to older-generation GPUs and components. This points to risks associated with forecasting customer demand and managing product transitions in a fast-changing market.
Super Micro Computer’s cash flow and working capital profile weakened significantly in the third quarter of fiscal 2026. The company reported cash flow used in operations of approximately $6.6 billion during the quarter compared with only $24 million used in the previous quarter. The deterioration was driven by a large reduction in accounts payable and continued inventory buildup. The company’s cash conversion cycle increased sharply to 106 days from 54 days in the prior quarter, while days inventory outstanding rose to 106 days from 63 days.
Nevertheless, SMCI’s backlog and order activity remain at record levels at present. Supported by industry-wide AI infrastructure demand and ongoing shortages of GPUs, CPUs and memory, SMCI continues to benefit from close relationships with major semiconductor vendors, especially NVIDIA, AMD, Intel and Arm. SMCI recently released a preliminary business update for the fourth quarter of fiscal 2026, reporting more than $60 billion in new orders during the fourth quarter.
SMCI reported that these new orders are expected to be delivered over future quarters and that its backlog reached a record level at the end of fiscal 2026. The company now expects gross margin of 15% to 17% for the fourth quarter, up from its previous guidance of 8.2% to 8.4%, primarily due to a favorable customer and product mix. The Zacks Consensus Estimate for SMCI’s fourth-quarter earnings of fiscal 2026 suggests a year-over-year improvement of 66%. Estimates have been revised downward in the past seven days.
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The Case for HPE Stock
Hewlett Packard Enterprise is benefiting from the modernization of traditional IT infrastructure and huge capex investment in artificial intelligence. HPE’s foray beyond traditional server architecture to accommodate compute, networking, storage, security, private cloud, virtualization, software for AI data centers and AI fabs is enabling it to monetize at a rapid pace.
Simultaneously, the demand for traditional servers, led by the end of the server technology cycle, has emerged as a major growth driver, with orders increasing by triple digits year over year. Enterprises are replacing aging infrastructure while also investing in servers for AI inferencing. These two tailwinds caused a multiplier effect, driving the second quarter of fiscal 2026 revenues to reach $10.7 billion.
Looking ahead, as AI moves into production, millions of enterprises will need infrastructure to run inference close to their proprietary data and applications. HPE is also benefiting directly from AI systems demand, entering the third quarter with $5.9 billion in AI Systems backlog, primarily from enterprise and sovereign customers. Juniper acquisition has also strengthened HPE in campus networking, data-center switching, routing and security.
HPE’s Private Cloud AI business continues to gain momentum as enterprises increasingly deploy AI workloads within their own infrastructure rather than relying solely on public cloud environments. The company's second-quarter fiscal 2026 results indicate that demand remains robust, raising the question of whether this adoption trend can continue over the coming quarters.
Hewlett Packard Enterprise also reported a record AI Systems backlog of $5.9 billion, including $1.8 billion in new AI Systems orders, providing meaningful visibility into future deployments. The company is uniquely positioned as it is one of the few companies that provide networking solutions as a part of wider AI infrastructure support. HPE’s self-driving networking capabilities, powered by agentic AI, further differentiate the portfolio. The Zacks Consensus Estimate for HPE’s third-quarter earnings of fiscal 2026 suggests a year-over-year improvement of 112%. Estimates have been revised upward in the past 30 days.
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Stock Price Performance and Valuation of SMCI & HPE
In the year-to-date period, shares of SMCI and HPE have risen 4.4% and 100.3%, respectively.
YTD Performance Chart
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SMCI is trading at a forward 12-month ratio of 0.36X, which is lower than its median of 0.45X, while HPE is trading at a forward sales multiple of 1.31X, much above its median of 0.79X.
Forward 12-Month (P/S) Valuation Chart
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Conclusion: SMCI vs. HPE
Both SMCI and HPE are well-positioned to benefit from accelerating AI infrastructure demand, but their risk-reward profiles differ. SMCI offers higher near-term upside driven by explosive order growth, strong backlog and deep ties with leading chipmakers, though inventory risks and volatile cash flows remain concerns. HPE, on the other hand, provides more balanced and sustainable growth through diversified AI, networking and private cloud offerings, supported by improving earnings visibility and upward estimate revisions. Given these factors, HPE seems to be a safer choice right now. HPE sports a Zacks Rank #1 (Strong Buy), while SMCI carries Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
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This article originally published on Zacks Investment Research (zacks.com).