San Jose, California – Super Micro Computer, commonly known as Supermicro and listed on NASDAQ as SMCI, has witnessed an impressive surge in its stock value, climbing by a staggering 2,220% over the past three years. This remarkable growth has been propelled by the rapid expansion of the artificial intelligence (AI) market, leading data center operators to invest in Supermicro’s high-performance AI servers.
A significant part of Supermicro’s recent success can be linked directly to Nvidia (NASDAQ: NVDA), a key player in providing high-end GPUs for processing complex machine learning and AI tasks. Through a close collaboration with Nvidia, Supermicro has been able to develop a new line of servers and workstations that fully support Nvidia’s H100 GPUs. This strategic partnership has allowed Supermicro to carve out a niche in the competitive market for pre-built servers, particularly in the realm of AI servers.
However, Supermicro’s reliance on Nvidia presents both opportunities and challenges. The company faced difficulties in securing a steady supply of Nvidia’s GPUs in early 2023, while also contending with competition from industry giants like Hewlett Packard Enterprise and Dell Technologies, who are also working with Nvidia to design cutting-edge AI servers. In its latest filing, Supermicro disclosed that it lacks long-term agreements with Nvidia or other suppliers that would solidify their position as exclusive partners.
The emergence of AMD (NASDAQ: AMD) in the data center GPU market poses a potential game-changer for Supermicro. AMD, which commanded a 17% share of the discrete GPU market last year, has been making strides in expanding its presence in the data center market with its Instinct GPUs designed for AI tasks. The performance of AMD’s latest MI300 Instinct GPUs has outpaced Nvidia’s H100 in terms of raw processing power and cost-effectiveness, signaling a looming challenge for Nvidia in the AI race.
Supermicro’s collaboration with AMD to design servers for Epyc CPUs and Instinct GPUs reflects a strategic shift towards diversification in the face of changing market dynamics. By expanding its portfolio with AMD-powered AI servers, Supermicro aims to reduce its dependency on Nvidia and mitigate risks associated with supply chain constraints. Furthermore, increased competition from AMD could potentially lead to price adjustments in Nvidia’s GPU offerings, thereby enhancing Supermicro’s profitability by lowering component costs.
With roughly half of its revenue generated from AI servers, Supermicro is poised for substantial growth in the dedicated AI server market, with projections indicating a potential increase in market share from 10% to 17% over the next three years. Analysts forecast a compound annual revenue growth rate of 42% from fiscal year 2023 to fiscal year 2026, underscoring the company’s significant potential in the AI market at a modest valuation. By strategically diversifying away from Nvidia with AMD-powered servers, Supermicro aims to position itself as a balanced player in the evolving AI landscape.