There has been no other company in the artificial intelligence (AI) space that has been watched as closely as NVIDIA(NASDAQ: NVDA) during the last few years. Nvidia’s role in the AI narrative is so prominent that any announcement the company makes has the power to rock the capital markets right now.
As the company’s next launch of its new Blackwell graphics processing unit (GPU) architecture approaches, all eyes are on Nvidia and its partner network. super microcomputer(NASDAQ:SMCI) is a gamer who has been a direct beneficiary of Nvidia’s booming GPU business over the past two years.
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However, some recent reports suggest that Nvidia may be moving away from relying on Supermicro’s IT infrastructure and seeking partnerships elsewhere.
Let’s analyze the situation and evaluate what could be influencing Nvidia’s decisions. Additionally, I will explore how this news has affected Supermicro stock and what it could mean for investors both in the short and long term.
The launch of the Blackwell chips may be the most hyped AI event of 2024. Nvidia CEO Jensen Huang has boasted that demand for the new chipsets is “insane.” Meanwhile, Morgan StanleyBlackwell’s research team forecasts $10 billion in sales in the fourth quarter alone. While this is all good news on the surface, there are some wrinkles developing underneath that smart investors should be keen to watch for.
According to an article published in DigitimesNvidia is said to be diverting Blackwell orders from Supermicro to other IT architecture specialists.
Image source: Getty Images.
The last few months have been brutal for Supermicro.
In August, Supermicro became the subject of a short report published by Hindenburg Research. Hindenburg alleges that Supermicro’s accounting controls are weak, essentially implying that something suspicious could be going on with its accounting and potentially the company’s financial prospects.
To be honest, I didn’t think much about Hindenburg’s accusations at the time. After all, short sellers have a vested interest in seeing a drop in stock price, which is exactly what happened after the brief report.
However, Supermicro ended up delaying its annual report after the Hindenburg report. While this wasn’t the best look, I remained cautiously optimistic about Supermicro. But then in late October, Supermicro filed an 8-K to notify investors that its auditor, Big Four accounting firm Ernst & Young, had resigned.
Considering how high the stakes are with everything Blackwell-related, it’s no surprise to learn that Nvidia is reorganizing its supply chain protocols. For now, Supermicro’s top priorities should be mitigating any further drama and getting its annual audit and filing under control. Unfortunately, I think any Blackwell-related work only adds additional pressure on Supermicro right now, and a failure to execute would only result in more drama surrounding the company.
It’s difficult to know the exact magnitude of Nvidia’s Blackwell orders for Supermicro. Supermicro operates in a highly intensive environment and is far from the only company specializing in storage clusters and server rack designs for data centers.
Since the Hindenburg report was published, Supermicro shares are down 58% (at the time of writing). So while migrating Blackwell’s orders from Supermicro will slow the company’s growth and signal an additional core of unwanted news, it can be argued that its impact is already built into the company’s share price to some extent.
SMCI Chart
By contrast, Nvidia stock has seen quite a bit of momentum lately. In fact, at the time of writing, Nvidia is the most valuable company in the world by market capitalization, eclipsing Apple at approximately 200 billion dollars.
I think this price action says a lot about how excited investors are about Blackwell and what management may reveal later this month when Nvidia reports third-quarter earnings on November 20. I’m curious if shifting orders away from Supermicro will have any major effects. impact on Blackwell’s shipments and, if so, how that will affect Nvidia’s growth in the near term.
For now, Supermicro and Nvidia stock are experiencing tremendous volatility, and I think investors are better off staying on the sidelines and letting the short-term narratives surrounding Blackwell continue to develop. AI is a long-term theme and investors will have ample opportunities to invest in Nvidia or Supermicro at more prudent times and reasonable price ranges.
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Adam Spatacco has positions at Apple and Nvidia. The Motley Fool has positions and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.
Nvidia’s Latest Move Just Gave Supermicro Investors Some Epic Bad News originally posted by The Motley Fool
