Breakups are never fun. And in the case of super microcomputer(NASDAQ:SMCI)There’s a pretty clear reason why his long-time partner NVIDIA seems to be moving forward.
In late August, Supermicro rose to prominence as the target of a short report written by Hindenburg Research. Shortly thereafter, Supermicro delayed filing the 10-K before The Wall Street Journal reported that the Department of Justice had launched an investigation into the company. To make matters worse, Ernst & Young resigned as Supermicro’s financial auditor over concerns about the company’s reporting. Amid this domino fall, the company was expected to be a major supplier of new storage clusters and server rack designs featuring Nvidia’s soon-to-be-released Blackwell GPU.
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Apparently, Nvidia has had enough. According to a Digitimes article, Nvidia is diverting Blackwell orders from Supermicro to avoid potential supply chain disruptions.
In this context, Dell Technologies(NYSE: DELL) could emerge as a winner from the Supermicro fallout. Here’s why the stock represents a great opportunity.
Nvidia has a lot riding on the release of Blackwell, and any bumps in the road at this stage of the game are unacceptable. But why could Dell help in this situation?
Dell is known for its consumer and enterprise computing devices, but it also has a large infrastructure solutions business, which is a fancy way of saying that Dell provides data center networking products and services. Like Supermicro, Dell’s storage solutions and server designs are an integral component of the broader artificial intelligence (AI) industry. The reason for this is that data centers house chipsets like Nvidia GPUs, which are important equipment for developing generative AI applications.
Perhaps the biggest reason Dell could be a winner with the launch of Blackwell is due to some clues that management dropped during the company’s latest earnings call. In August, COO Jeffrey Clarke shared that the company has been selling its “most advanced Blackwell-aligned architecture to various customers.”
He went on to tell investors that Dell’s IT infrastructure portfolio “is across all types of architectures,” but “[t]the vast majority [is] within Nvidia H100, H200 and Blackwell, as well as a couple of other opportunities around amd and Intel“.
I don’t want to put the cart before the horse, but I see the above statements as a clear indication that Dell is already working closely with Nvidia. More importantly, Blackwell is already shaping up to be a tailwind for Dell. Another way to look at Nvidia’s situation right now is that if companies buying Blackwell GPUs can’t guarantee access to the chipset architecture services they need, demand for the new chips will likely stagnate.
Nvidia needs its IT infrastructure partners to be vigilant as the Blackwell launch looms, and with Supermicro’s problems showing no end in sight, it’s paramount that Nvidia identifies other vendors to help, and quickly.
Image source: Getty Images.
In the chart below, you can see Dell compared to a set of IT infrastructure vendors by their forward price-to-earnings (P/E) ratios.
DELL PE Ratio Chart (Forward)
Given all the controversy surrounding Supermicro, it’s not surprising to see its valuation contract so dramatically. In contrast, Dell’s Forward P/E of 17.1 has remained fairly stable for quite some time. Not only is Dell trading at a significant discount to Arista Networksbut he S&P 500The average Forward P/E of 22.1 is also noticeably higher.
In my opinion, the market is drastically underestimating Dell right now. The company already has Blackwell-driven tailwinds driving its near-term growth. And now, with Nvidia seemingly moving orders away from Supermicro and looking elsewhere, I’m surprised to see Dell’s valuation barely moving on this news.
While I don’t know for sure if Nvidia turned to Dell during this Supermicro fiasco, the Blackwell launch is shaping up to be a big deal for those involved. And since Dell has already shared with investors a good portion of its order book is in some way related to Nvidia, it’s hard to see how an investment in Dell will produce lower returns than the overall market a year from now.
There is currently a huge opportunity to jump into Dell stock, regardless of whether or not the company benefits from changes to Supermicro’s order flow.
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Adam Spatacco has positions at Nvidia. The Motley Fool has posts and recommends Advanced Micro Devices, Arista Networks, Intel, and Nvidia. The Motley Fool recommends the following options: Short November 2024 calls for $24 on Intel. The Motley Fool has a disclosure policy.
Nvidia’s alleged hit at Supermicro could be a big win for this other artificial intelligence (AI) company originally published by The Motley Fool
