To The Moon

Company Overview

Super Micro is Silicon Valley based provider of accelerated compute platforms that are application-optimized high performance and high efficiency servers and storage systems for a variety of markets, including enterprise data centers, cloud computing, artificial intelligence, 5g and edge computing. Super Micro’s total IT solutions include complete servers, storage systems, modular blade servers, blades, workstations, full rack scale solutions, networking devices, server sub-systems, server management and security software.

Server and Storage Systems

SMCI sells accelerated compute platforms comprising a combination of server and storage systems in rackmount, blade, multi-node and embedded form factors, which support single, dual, and multiprocessor architectures. Key product lines include the following:

• SuperBlade and MicroBlade system families designed to share common computing resources, thereby saving space and power over standard rackmount servers.

• SuperStorage systems that provide high-density storage while leveraging an efficient use of power to achieve performance-per-watt savings.

• Twin family of multi-node server systems designed for density, performance, and power efficiency; • Ultra Server systems for demanding enterprise workloads.

• GPU or Accelerated systems for rapidly growing AI markets.

• Data Center Optimized server systems that deliver increased scalability and performanceper-watt with an improved thermal architecture.

• Embedded (5G/IoT/Edge) systems optimized for evolving networks and intelligent management of connected devices;

• MicroCloud server systems that deliver node density in environments with space and power constraints.

Subsystems and Accessories

In addition to the accelerated compute platforms business, SMCI offers a large array of modular server subsystems and accessories, such as server boards, chassis, and power supplies. These subsystems are the foundation of platform solutions and span product offerings from the entrylevel single and dual-processor server segment to the high-end multiprocessor market. The 19 September 2023 14 Barclays | Super Micro majority of the subsystems and accessories it sells individually are designed to work together to improve performance and are ultimately integrated into complete server and storage systems.

Industry Analysis

AI data server market is expected to reach $150 Billion in 2027 from $30 Billion in 2023. It is mainly driven by the increased demand for generative AI services.

Porter’s 5 Forces Analysis

Bargaining Power of Suppliers – Medium as currenty SMCI currently use Ablecom and Compuware Technology for its contract design and manufacturing coordination support. Ablecom also warehouses multiple components and subassemblies as well. However there are multiple third party supplier throughout Asia that are able to do this.

Threat of Substitutes – Low as SMCI has a competitive advantage in its rack scale plug n play AI solutions and liquid cooling. Thus normal servers won’t be able to replace SMCI’s AI server solutions. CSPs and Enterprises do not frequently change their servers thus threat of substitutes is low

Bargaining Power of Buyers – Medium as not there are not many competitors in this industry. Buyers might negotiate for lower prices due to a smaller client base.

Threat of New Entrants – Low as it takes an intensive amount of capital to research and develop servers and build partnerships with third party suppliers and chip makers such as Intel.

Competitive Rivalry – High as companies are continuously aiming to be more energy efficient and lower operational expenses for clients. They are also competing to have more computing power so that their servers can be used for wider use cases such as generative AI.

Investment Theses

SMCI has a Strong AI Technology differentiation over its competitors.

1. Liquid to Liquid Cooling

SMCI managed to tackle its leakage issues in its liquid cooling offerings with the new liquid to liquid to cooling offering. The liquid-to-liquid cooling offerings are projected to result in 40% lower operating expenses, lower lead time for a complete installation and increased performance. On top of that up to 86% reduction in direct cooling costs may be realized. Thus, SMCI might be well positioned for market share gains.

1. Rack Scale Plug n Play AI Solutions

Rack Scale is a Plug n Play solution where servers are built into the rack which come in building blocks. This severely reduces server room assembly time. This purpose-built highest density turnkey rack scale solution is extremely scalable and customizable to meet any scale of Deep Learning workload demands. Leveraging NVIDIA’s cutting-edge NVIDIA H100 SXM GPUs and harnessing the power of Supermicro’s supreme building blocks, these rack-scale AI solutions deliver unprecedented Deep Learning performance. On Dec 14 2023 announced the new product lineup of servers with the new 5(th) Gen Intel Xeon Processors which have a performance gain of 87% over 3(rd) Gen Intel Xeon Processor-Based Systems. These new servers area also able to support Generative AI.

Strong AI Server Revenue Growth due to higher demand

SMCI is well positioned to capture the AI server opportunity, leading to a stronger revenue growth over the next few years. AI / GPU rack-scale accounted for 52% of SMCI’s total 2Q23 revenue and it is estimated that it will account for over 70% in FY24 and 80% in FY25. SMCI has 7% market share globally. It is estimated that SMCI ships 50k AI server’s yearly vs the 700k total annual AI server shipment. SMCI will continue to take share from Dell and HP due the rise in cloud as cloud operators don’t need HP/ Dell support or services to run its server farm. Thus, SMCI will be able to capitalize and serve enterprises better.

SMCI has strong AI Partnerships with companies such as Tesla and X

SMCI is the exclusive AI Server supplier to Tesla which aims to increase its AI Capacity by 10x in 1-2 years. SMCI also supplies to Coreweave and Meta. It also has key partnerships with Rakuten, NASA and NTNX.

Valuation

Street estimates for SMCI FY24 Revenue growth is estimated to be 49.7% while tapering down to 26% revenue growth for FY28. With an Enterprise value of 17.106 billion and equity value of 17.256 billion, intrinsic share price of SMCI is $308.70 using a 5-yr DCF.

*Do note that all of this is for information only and should not be taken as investment advice. If you should choose to invest in any of the stocks, you do so at your own risk.

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