Why Super Micro Computers Are Making a Comeback Today

Stocks of artificial intelligence (AI) server specialist companies Super Micro Computers (SMCI 6.18%) It was up 7.2% as of 12:04 p.m. ET, showing gains in Monday trading.

Server manufacturers tumbled last week after the company reported fourth-quarter earnings that showed a surge in revenue but a decline in margins. But after last week’s selloff and the recent selloff in AI stocks, Supermicro and other AI companies are rebounding strongly today.

It was the weekend that helped the rebound The Wall Street Journal This article introduces the company’s new Direct Liquid Cooling (DLC) products.

Liquid Cooling Could Accelerate SMCI Growth

In its August 6 earnings report, Supermicro actually forecasted nearly 100% revenue growth next year, significantly exceeding analyst expectations, but expected margins to decline in the near term. Management attributed this to the strong near-term demand for these solutions, which has led to an acceleration in shipping costs for direct liquid cooling components.

Still, the fact that demand is high enough to warrant paying for faster component delivery isn’t the worst of it. Supermicro management also forecasts margins to increase over the next 12 months.

This weekend’s The Wall Street Journal We have introduced an article on Direct Liquid Cooling (DLC) technology. This article covers: NvidiaThe upcoming Blackwell chip will require liquid cooling when installed in the GB200 server.

Two weeks ago, The Information reported that Blackwell was facing delays due to a design flaw discovered late in the process. But over the weekend, several analysts said concerns about delays were overblown. UBS Co., Ltd. Analyst Tim Arcuri reaffirmed his $150 price target for Nvidia, but said it could take up to four to six weeks for the stock to be released, and only slightly cut his earnings per share forecast for the year.

So, there will be sufficient demand for DLC solutions for GB200 servers over the next 12 months, so a short delay will not affect Supermicro’s strong outlook.

What’s particularly encouraging about Supermicro is that: The Wall Street Journal Article points out that some of Supermicro’s Asian competitors have had some issues with DLC testing, with leaks and other issues. Hon Hai Precision Industry Co., Ltd.Also known as Foxconn, along with two other unnamed suppliers, people familiar with the matter said recent social media leaks and rumours of failures could be due to normal issues that arise during routine product testing.

But in a conference call last week, Supermicro CEO Charles Liang noted that Supermicro had already shipped 1,000 liquid cooling racks in June and July, likely for Nvidia H100 and H200 servers, representing at least 15% of its worldwide server deployments during those months. Liang also estimated that Supermicro accounts for at least 70% to 80% of all DLC servers shipping today.

So it looks like Supermicro was first to market with a working DLC ​​solution, and if Blackwell is just a few weeks behind, that could be a good combination for SMCI stock.

AI investment looks set to continue

While the recent selloff has undoubtedly made investors nervous, there is no evidence that AI investment is slowing down. In fact, big tech companies have said this earnings season that they will continue to increase their AI investments this year and next. So barring a serious recession, the recent selloff could be an opportunity to buy AI winners like Supermicro on the cheap.