There has been no other company in the artificial intelligence (AI) realm that's been watched as closely as Nvidia(NASDAQ: NVDA) over the last couple of years. Nvidia's role in the AI narrative is so prominent that any announcement the company makes has the power to swing the capital markets at this point.
As the company's upcoming launch of its new Blackwell graphics processing unit architecture (GPU) looms, all eyes are on Nvidia and its partner network. Super Micro Computer(NASDAQ: SMCI) is one player that's been a direct beneficiary of Nvidia's booming GPU business over the last two years.
However, some recent reporting suggests that Nvidia may be migrating away from its reliance on Supermicro's IT infrastructure and looking for partnerships elsewhere.
Let's break down the situation and assess what could be influencing Nvidia's decisions. Moreover, I'll explore how this news has been impacting Supermicro stock and what it could mean for investors in both the near and long term.
What did Nvidia just do?
The launch of the Blackwell chips may be the most hyped-up AI event of 2024. Nvidia CEO Jensen Huang has boasted that demand for the new chipsets is "insane." Meanwhile, Morgan Stanley's research team is forecasting $10 billion in sales from Blackwell just in the fourth quarter. While all of this is good news on the surface, there are some wrinkles unfolding in the background that smart investors should be keen on watching.
According to an article posted on Digitimes, Nvidia is said to be routing Blackwell orders away from Supermicro in favor of other IT architecture specialists.
Image source: Getty Images.
Why is Nvidia moving away from Supermicro?
The last couple of months have been brutal for Supermicro.
Back 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 fishy could be going on with its bookkeeping and potentially the financial outlook of the company.
To be honest, I didn't think much of Hindenburg's allegations at the time. After all, short-sellers have a vested interest in seeing a stock price decline -- which is exactly what happened following the short report.
However, Supermicro ended up delaying its annual report following 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 much is on the line with anything related to Blackwell, it's not surprising to learn that Nvidia is reorganizing its supply chain protocols. For now, Supermicro's top priorities should be to mitigate any further drama and get its audit and annual filing under control. Unfortunately, I think any work related to Blackwell just adds additional pressure on Supermicro right now, and a failure to execute would only result in more drama surrounding the company.
What should investors look at from here?
It's hard to know the exact magnitude that Nvidia's Blackwell orders were 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, shares of Supermicro are down 58% (at the time of this writing). So, while migrating Blackwell orders away from Supermicro will decelerate the company's growth and signal an extra kernel of unwanted news, there's an argument to be made that its impact is already baked into the company's share price to some degree.
Conversely, shares of Nvidia have been experiencing quite a bit of momentum as of late. In fact, as of the time of this article, Nvidia is the most valuable company in the world by market cap, eclipsing Apple by roughly $200 billion.
I think this price action speaks volumes about how excited investors are for Blackwell and what management may reveal later this month when Nvidia reports third-quarter earnings on Nov. 20. I'm curious to learn if moving orders away from Supermicro will have any material impact on shipments of Blackwell, and if so, how that will impact Nvidia's growth in the near term.
For now, shares of both Supermicro and Nvidia are experiencing outsized volatility, and I think it's in the best interest of investors to sit on the sidelines and let the near-term narratives surrounding Blackwell continue to unfold. AI is a long-term theme, and investors will have ample opportunities to invest in either Nvidia or Supermicro at more prudent times and reasonable price ranges.
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Adam Spatacco has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.
