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super microcomputer (NASDAQ:SMCI), better known as Supermicro, has seen its shares soar 2,220% in the last three years. That surprising rebound was fueled by the rapid expansion of artificial intelligence (AI), leading data center operators to purchase more high-performance AI servers.
Much of Supermicro’s growth can be directly attributed to NVIDIA (NASDAQ: NVDA), which provides high-end GPUs that process complex artificial intelligence and machine learning tasks. Nvidia worked closely with Supermicro to design a new line of servers and workstations that were fully compatible with its H100 GPUs, and that close relationship allowed Supermicro to create a high-growth niche with its AI servers in the highly commoditized market. of pre-designed servers.
However, Supermicro’s dependence on Nvidia is a double-edged sword. It struggled to secure a steady supply of Nvidia GPUs in early 2023, and its two biggest competitors: Hewlett Packard Company and Dell Technologies – They have also been working with Nvidia to design new AI servers. In its latest 10-K filing, Supermicro admitted that it doesn’t have any long-term agreements with Nvidia or its other suppliers that would truly secure them as exclusive partners.
That’s why amd‘s (NASDAQ:AMD) The recent expansion in the data center GPU market could be great news for Supermicro.
Why AMD could catch up to Nvidia in the AI race
AMD only controlled about 17% of the discrete GPU market last year, according to Jon Peddie Research, putting it a distant second behind Nvidia with its 80% share. AMD’s involvement primarily consists of gaming GPUs for PCs, but it has been expanding its reach into the data center market with its Instinct GPUs for processing AI tasks.
AMD launched its first batch of Instinct GPUs (MI6, MI8 and MI25) in 2017. It launched its newest MI300 Instinct GPUs, which are manufactured with TSMC5nm and 6nm process nodes, due in late 2023. According to several industry benchmarks, AMD’s high-end MI300X surpassed Nvidia’s H100 in terms of raw processing power and memory usage.
That’s a bright red flag for Nvidia, as the H100, which faces continued supply chain constraints, still costs about four times as much as the MI300. Nvidia claims that the H100 still outperforms the MI300 when running optimized software, but that slight difference probably won’t justify its premium price for cost-conscious data center operators.
That’s why it wasn’t surprising when AMD CEO Lisa Su recently said that the MI300 was on track to be “the fastest revenue growth of any product” in the company’s history. Its also estimates that AMD’s Epyc CPUs have claimed 25% of the server CPU market at the expense of Intel‘s (NASDAQ: INTC) Market-leading Xeons. Between the growth of those two businesses and the expansion of its programmable chip business (from Xilinx), AMD has more data center clustering options than Nvidia.
Approaching AMD
Supermicro already works closely with AMD to design servers for its Epyc CPUs and Instinct GPUs. In November, Supermicro CEO Charles Liang predicted that AMD’s MI300 GPUs, Nvidia’s latest GPUs, and Intel’s Gaudi AI accelerator chips would “gain widespread adoption and expand our share of the accelerated computing market.” . In January, Liang predicted that ongoing diversification would “more than double the size” of the company’s AI portfolio.
If Supermicro sells more AMD-powered AI servers, it could reduce its long-term dependence on Nvidia and insulate itself from any future supply chain constraints. Competitive pressure from AMD could also lead Nvidia to reduce the prices of its GPUs, which would increase Supermicro’s gross margins by reducing its component costs.
A well-balanced play in the AI market
Supermicro already generates about half of its revenue from its AI servers, and Bank of America believes it could expand its share of the AI dedicated server market from 10% currently to 17% in the next three years.
That’s why analysts expect its revenue to grow at a compound annual rate of 42% from its fiscal 2023 (which ended in June) to its fiscal 2026. That’s an astonishing growth rate for a stock that trades at just 3 times this year’s sales.
That low valuation already makes Supermicro an attractive long-term bet in the AI market, but its gradual diversification away from Nvidia with AMD-powered servers could make it a more balanced bet in the AI market than either. from chip manufacturers.
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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 positions 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 picks: long $57.50 January 2023 calls on Intel, long $45 January 2025 calls on Intel, and short $47 February 2024 calls at Intel. The Motley Fool has a disclosure policy.
Forget Nvidia: AMD Could Be the Super Micro Computer’s New Best Friend was originally published by The Motley Fool
