CEO Charles Liang was born in Taiwan and came to the U.S. after college. PHOTO: WALID BERRAZEG/ZUMA PRESS
Nvidia has reigned as the investor darling of the artificial intelligence boom, more than quadrupling the value of its shares in the past year. But one of the chipmaker's customers is performing even better.
Once under the radar, server-maker Super Micro Computer has become a go-to supplier for companies and governments eager to participate in the AI boom. Runaway sales of its servers filled with Nvidia's AI chips are projected to double the company's revenue this year and have leapfrogged it ahead of some of its biggest competitors.
Super Micro Computer's shares have increased more than 12-fold in the past 12 months, and it is set to become part of the S&P 500 index of large U.S.-listed companies on Monday. When it does, it will be -- by far -- the index's top one-year performer.
The company, usually referred to by its Supermicro brand, was founded in Silicon Valley in 1993 -- the same year Jensen Huang co-founded Nvidia. And like Nvidia, Supermicro has also been led for its entire history by one person. In Supermicro's case, by President and Chief Executive Charles Liang, who was born in Taiwan and came to the U.S. after college.
Liang said in an interview with The Wall Street Journal that he has known Huang for decades. But the companies' fortunes have become heavily entangled only now, amid the boom in AI.
Nvidia spent its first couple of decades focusing mostly on making chips that improved computer graphics for gamers. Supermicro competed in the less-flashy world of servers for data centers, latching onto the growth of cloud computing and the digital economy.
Servers made by Super Micro Computer often run on Nvidia chips. PHOTO: ANN WANG/REUTERS
Then AI came along. Nvidia's chips became the workhorses of the boom, making the complex computations necessary to create systems such as OpenAI's ChatGPT. Server manufacturers who could ship those chips to customers fastest and in the largest quantities had an edge.
Liang said it has been helpful that his base in San Jose, Calif., is just a 15-minute drive from Nvidia's headquarters in Santa Clara. "Our engineering teams are able to work together from early morning to midnight," he said.
Supermicro's recent dominance in the AI boom, industry executives and analysts say, also stems partly from its strategy of making electronic "building blocks" that can be assembled into servers in an almost endless number of configurations. Rivals offer a more limited menu to customers .
The destinies of Nvidia and Super Micro Computer appear strongly linked. PHOTO: SAM YEH/AGENCE FRANCE-PRESSE/GETTY IMAGES
That flexibility has been an advantage in the AI boom, analysts say. Developers of self-driving car technology want different server setups than companies making language-generation AI systems such as ChatGPT. Supermicro can deliver customized infrastructure for both.
Competitors are trying to match Supermicro's speed at building custom servers, said Hans Mosesmann, analyst with Rosenblatt Securities.
"The treadmill is just going too fast," Mosesmann said.
'Give me more chips'
Liang said Supermicro has also benefited from having a $1 billion-plus inventory. And it has been able to get its hands on large quantities of Nvidia's most advanced AI chips, even during a period of sky-high demand for them that has led to a long-lasting shortage.
When Liang and Huang appeared together at a computing conference in Taiwan last summer, Liang launched an AI server that he said would be available in the next few weeks, depending on the availability of Nvidia's chips. "It depends on you, not me," Huang said.
"Give me more chips!" Liang replied.
Supermicro has grown so fast that it has needed to raise money to afford those chips, each of which costs around $25,000. The company raised $1.5 billion from the sale of convertible debt last month, after adding $600 million to its coffers from a stock issuance three months ago.
"We need more money because demand is so strong," Liang said, adding that the cash would also help to build up Supermicro's supply chain.
As part of that effort, Liang is expanding manufacturing in San Jose, as well as in Taiwan and Malaysia. Liang said his goal was to be producing 5,000 racks of servers a month -- an amount of computing infrastructure that would measure 6 feet high and almost 2 miles long -- by the middle of this year.
"More than 50% of that is AI," he said. Liang has also said that the manufacturing growth is sufficient to bring the company's potential revenue above $25 billion a year, an addition of roughly $10 billion to annual sales based on its latest quarterly revenue.
Past and future challenges
While analysts say the company's prospects remain bright even after the stock's meteoric rise, Supermicro has had its share of challenges. Its chief financial officer and one of its co-founders stepped down after an internal audit begun in 2017 led to revisions to the company's previous financial statements. The Securities and Exchange Commission charged the former CFO with accounting violations in 2020, which was followed by a settlement of the proceeding.
Liang has said those troubles are behind the company, which is focused now on making sure it stays ahead of its competitors in the increasingly fierce battle for market share in AI computation. Both of Supermicro's main rivals, Dell Technologies and Hewlett Packard Enterprise, have more employees and more than double the company's revenue, even after its recent rise.
The AI processor market is expected to keep growing fast. Chip maker Advanced Micro Devices is projecting the market for AI accelerators will reach $400 billion by 2027, and analysts expect demand for servers to increase in tandem.
Supermicro's AI-oriented servers made up more than half of its nearly $3.7 billion in sales in its latest quarterly report. Dell and HPE, by comparison, shipped $800 million and more than $400 million of similar servers, respectively.
Analysts clash on Supermicro's ability to hold on to its position longer term. Wedbush analyst Matt Bryson said, historically, no company selling servers has had more than 30% market share.
"There's not a reason Dell can't do exactly what they're doing," Bryson said.
Others aren't so sure. Some analysts say that established competitors will have a hard time bringing new products to market so quickly and have larger revenue streams from software and services.
Supermicro is trying to gain further market share by doubling down on AI and continuing to ship its servers out quickly. The company is also keeping prices low to entice new customers: Its gross profit margin totaled around 15% in its latest quarter, down from 17% in the previous one. HPE, by comparison, had gross margins of 36% in its latest quarter.
"In order to take market share, we will take opportunities by being more competitive on pricing," Chief Financial Officer David Weigand said on the company's earnings call in January.
Write to Asa Fitch at asa.fitch@wsj.com and Ben Glickman at ben.glickman@wsj.com
(END) Dow Jones Newswires
March 17, 2024 05:30 ET (09:30 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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