Super Micro Computer (SMCI) experienced a volatile week as its stock price surged and then quickly retreated amid both positive developments and lingering concerns. The stock jumped 16% on Monday after the company announced that it was shipping over 100,000 Nvidia GPUs per quarter for some of the largest AI factories ever built, signaling strong demand for its AI server products. However, this initial rally was short-lived as shares fell 5% on Tuesday, reflecting investor caution due to Super Micro's ongoing financial and regulatory issues.
Despite the upbeat news on AI demand, Super Micro continues to grapple with significant challenges. The company has faced scrutiny since a report by Hindenburg Research accused it of accounting irregularities, undisclosed relationships between its CEO and other entities, and violations of U.S. export controls. The allegations caused Super Micro's stock to drop 20% and triggered further losses after the company delayed filing its 10-K report to the SEC. Additionally, a Wall Street Journal report indicated that Super Micro is under a Department of Justice investigation, adding to investor concerns about the company's regulatory compliance.
Analysts remain divided on Super Micro's outlook, reflecting both its growth potential and the risks involved. While some are optimistic about the company's future due to its robust sales growth in the AI sector, others maintain a more cautious stance. The overall sentiment among analysts suggests that while the company has the potential for significant upside if regulatory issues are resolved, the risks associated with these concerns continue to weigh heavily on its stock performance.
Barclays maintained its Equal Weight rating and a $42 price target, indicating an 11% downside. Barclays forecast that Super Micro's gross margins could drop to 11.5% for the September-quarter, below the analysts' consensus of 12% and significantly lower than the 17% margin a year ago. This pressure on profitability stems from Super Micro's aggressive price cuts to maintain market share and key clients like CoreWeave and Elon Musk's AI startup xAI.
Today, Supermicro announced the launch of its new H14 product line, which includes servers, GPU-accelerated systems, and storage servers featuring the latest AMD EPYC 9005 Series processors and AMD Instinct MI325X GPUs. The extensive server family incorporates Supermicro's Hyper systems, Twin multi-node servers, and AI inferencing GPU systems, all with options for air or liquid cooling. Utilizing the new "Zen5" processor core architecture, the H14 servers offer a 17% improvement in instructions per cycle (IPC) and up to 192 cores per CPU, significantly enhancing AI inference and data center efficiency. According to Supermicro CEO Charles Liang, the new servers deliver 2.44 times faster performance compared to previous models, enabling reduced data center footprints while boosting AI processing capabilities, making them a powerful solution for AI, cloud, and edge computing workloads.
Hewlett Packard Enterprise (HPE) is set to spotlight its advanced "liquid cooling" technology for AI servers during its upcoming investor event, a development that Bank of America believes could signal significant growth in AI data center solutions. As Nvidia's next-generation AI chips demand more efficient cooling, HPE's hybrid air/liquid and direct-to-chip liquid cooling technologies position the company as a key player in this emerging field. With HPE's stock up 23% this year, this focus on liquid cooling could elevate its market presence. This move also presents a challenge to Super Micro Computer, which has already entered the space with its liquid-cooled AI data center systems, including the recently launched "AI SuperClusters." As both companies compete to lead in AI server technology, the race to innovate in liquid cooling could intensify, potentially impacting SMCI's position in this growing market.
Investors should be prepared to continue to track this name. The volatility will present opportunities for both long and shorts. As for longer term investors, it would be wise to wait for the earnings report to cross and gather some greater clarity on the DoJ issue before putting money to work in it.