SMCI raises Q2 outlook driven by AI-chip demand.

In a preliminary announcement, Supermicro (SMCI), a supplier of advanced LED chips for display applications, revealed its expectations for the second quarter's financial performance, surpassing previous guidance. The updated figures indicate significant projections of increased net sales and improved diluted net income per common share. This positive development is seen as a potential bullish signal for the future growth of chip manufacturer NVDA.

The preliminary results released by SMCI exceeded market expectations, leading to a 5% increase in the company's share price. The projected sales for the second quarter are now expected to be between $3.6 billion and $3.65 billion, significantly higher than the earlier estimate of $2.78 billion. This demonstrates a substantial improvement in anticipated revenue and showcases the company's ability to generate strong sales. Analysts expect SMCI's revenue for the fiscal year 2024 to reach $14 billion.

Additionally, there is an optimistic outlook regarding earnings per share. The GAAP diluted net income per common share is projected to range between $4.90 and $5.05, surpassing the previous estimate of $3.75 to $4.24. The non-GAAP diluted net income per common share is also expected to be higher, with the new guidance ranging from $5.40 to $5.55, compared to the prior estimate of $4.40 to $4.88. These revisions imply a more positive perception of SMCI's profitability and indicate a stronger earnings performance than previously anticipated.

Wedbush noted SMCI's solid results were driven by deals related to artificial intelligence (AI). While it acknowledged some uncertainties, Wedbush remained confident about the correlation between SMCI's performance and the allocation of NVDA's graphics processing unit (GPU) chips. Despite the potential challenges posed by demand outpacing supply, Wedbush interpreted the surge in revenue as a positive indicator for NVDA's growth in the fourth quarter. Wedbush pointed out that Meta, the parent company of Facebook, also made significant investments in AI, which could indirectly benefit SMCI. As a substantial customer of SMCI in the past, Meta's commitment to AI could potentially contribute to SMCI's continued success.

SMCI's preliminary results for the second quarter far exceeded expectations, with higher net sales and projected earnings. The favorable outcome augurs well for NVDA's future growth, as the AI-oriented deals contributing to SMCI's success are seen as a bullish signal for NVDA's performance in the coming months. With Meta's substantial investment in AI, including a significant previous relationship with SMCI, this positive trend may continue. Investors and analysts are eagerly awaiting further updates and observing the potential synergies between SMCI, NVDA, and other industry participants.

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