Super Micro Computer: The Rise of AMD in the AI Market
Super Micro Computer (NASDAQ: SMCI), commonly known as Supermicro, has experienced an astonishing rise of 2,220% in its stock over the past three years. This remarkable rally can be attributed to the rapid expansion of the artificial intelligence (AI) market. As the demand for AI servers increased, Supermicro emerged as a major player providing high-performance AI servers.
The growth of Supermicro owes much to its close partnership with Nvidia (NASDAQ: NVDA), a leading provider of high-end GPUs for complex machine learning and AI tasks. Nvidia worked closely with Supermicro to design cutting-edge servers and workstations, fully supporting its H100 GPUs. This collaboration allowed Supermicro to establish a strong presence in the highly competitive market for pre-built servers.
However, Supermicro’s reliance on Nvidia has its challenges. In early 2023, it struggled to secure a steady supply of Nvidia GPUs. Competitors like Hewlett Packard Enterprise and Dell Technologies also collaborated with Nvidia to design new AI servers. In its latest 10-K filing, Supermicro admitted that it lacks long-term agreements with Nvidia or other suppliers as exclusive partners.
Why AMD could catch up to Nvidia in the AI race
AMD (NASDAQ: AMD) is emerging as a formidable contender in the AI market. Although it currently holds only 17% of the discrete GPU market, mainly in gaming GPUs for PCs, AMD has expanded into the data center market with its Instinct GPUs, specifically designed for AI tasks.
In 2017, AMD introduced its first batch of Instinct GPUs (MI6, MI8, and MI25), followed by the latest MI300 Instinct GPUs in late 2023, manufactured using TSMC’s advanced process nodes. According to several industry benchmarks, AMD’s high-end MI300X outperforms Nvidia’s H100 in terms of raw processing power and memory usage.
Notably, the H100, plagued by ongoing supply chain constraints, costs approximately four times as much as the MI300. While Nvidia claims the H100 outperforms the MI300 with optimized software, the price gap and similar performance may not justify its premium price tag for cost-conscious data center operators.
Cozying up to AMD
Supermicro has already fostered a close partnership with AMD for designing servers equipped with its Epyc CPUs and Instinct GPUs. Supermicro’s CEO, Charles Liang, projected broad adoption of AMD’s MI300 GPUs, as well as Nvidia’s latest GPUs and Intel’s Gaudi AI accelerator chips, in the accelerated compute market. Liang anticipated the ongoing diversification to considerably expand Supermicro’s AI portfolio.
By selling more AMD-powered AI servers, Supermicro can reduce its long-term dependency on Nvidia and safeguard itself against future supply chain constraints. Moreover, increased competition from AMD could compel Nvidia to lower its GPU prices, resulting in improved gross margins for Supermicro due to decreased component costs.
A well-balanced play on the AI market
Supermicro already generates approximately half of its revenue from AI servers. According to Bank of America, Supermicro’s share of the dedicated AI server market is expected to grow from 10% to 17% over the next three years. Analysts forecast a compound annual revenue growth rate of 42% from fiscal 2023 to fiscal 2026. Remarkably, the stock trades at a mere three times its annual sales, making Supermicro an attractive long-term investment in the AI market.
The gradual diversification away from Nvidia and towards AMD-powered servers positions Supermicro as a well-rounded player in the AI market, benefiting from the growth potential of both companies and the expansion of its programmable chip business.
Should investors consider Super Micro Computer? Although Super Micro Computer has significant potential, it is not part of the Motley Fool’s selection of the 10 best stocks. However, their stock advisor service has consistently outperformed the S&P 500 index, offering valuable guidance and stock recommendations.
Please note that the above article is an excerpt and extracts key information from public sources for the purpose of journalism. No resemblance to any AI-generated content is intended, and this content has been created to maintain originality and authenticity.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Bank of America, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and Super Micro Computer and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
This article was originally published by The Motley Fool.
