Why SMCI Isn't the Stock to Play Nvidia's AI Boom？
SMCI $SUPER MICRO COMPUTER INC(SMCI)$ has experienced a 276% year-to-date surge, reaching USD 1074.34.
Its remarkable performance is primarily attributed to:
The company is poised to join the S&P 500 Index, with the effective inclusion scheduled before the opening of trading on Monday, March 18, aligning with the quarterly rebalance.
The latest earnings results and forecasts have surpassed street expectations.
SMCI is capitalizing on the AI spending boom, as the company sells AI server solutions, including rackmounts used for deploying AI chips.
Why SMCI isn’t the stock to play the artificial intelligence revolution?
Its gross profit margin and operating margin were only 15.4% and 10.14%, respectively, while Nvidia's gross profit margin and operating margin were significantly higher at 75.97% and 61.6%.
Supermicro doesn't design proprietary chips; instead, it purchases components and assembles them into servers. Its server technology innovation is less advanced than Nvidia’s AI chip designing technology.
Supermicro competes with many well established firms such as Dell, HP, and Lenovo in the server market.
It also faces intense competition in the OEM business, competing with Inventec, the Wistron Group, and Foxconn.
SMCI’s forward PE ratio at 39.6x is relatively more expensive than Nvidia’s 34.6x.
It is estimated that Supermicro generates half of its revenue from Nvidia's GPUs. I view this as a significant customer concentration risk for SMCI.
Conclusion
All things considered, I believe SMCI is a weak pick-and-shovel play in the AI Gold Rush. I prefer ASML, TSMC, Nvidia, and AMD to gain exposure to the AI pick-and-shovel play.
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Good read