Nvidia's Recent Action Delivers Disappointing News to Supermicro Shareholders, Experiencing Significant Setbacks
Nvidia's Recent Action Delivers Disappointing News to Supermicro Shareholders, Experiencing Significant Setbacks
Over the past couple of years, no AI company has been scrutinized as tightly as Nvidia (NVDA 3.08%). The company's significant influence in the AI field is such that any announcement it makes can sway the stock market at this point.
As Nvidia gets ready to release its latest Blackwell graphics processing unit (GPU) architecture, all eyes are on the company and its partnership network. One of the prime beneficiaries of Nvidia's successful GPU business in the last two years is Super Micro Computer (SMCI 1.12%).
However, recent reports suggest that Nvidia might be looking to lessen its dependency on Supermicro's IT infrastructure and seek out other partnerships.
Let's dissect the situation and analyze what could be influencing Nvidia's decisions. Additionally, let's examine how this development has impacted Supermicro's stock and what investors should anticipate in the short and long term.
What moves has Nvidia made lately?
The anticipated launch of the Blackwell chips is generating a lot of buzz in the AI world, with Nvidia CEO Jensen Huang stating that demand for the new chipsets is "crazy." Morgan Stanley's research team, meanwhile, projects $10 billion in sales from Blackwell solely in the fourth quarter. While these are positive indicators, some complications are arising that discerning investors should keep an eye on.
According to an article on Digitimes, Nvidia is reportedly shifting Blackwell orders away from Supermicro towards other IT architecture specialists.
What's triggering Nvidia to distance itself from Supermicro?
The last couple of months have been tough on Supermicro.
In August, Supermicro was the focus of a questionable report published by Hindenburg Research. Hindenburg claims that Supermicro's accounting controls are weak, implying that there might be irregularities in its financial records and projections.
To be honest, I wasn't particularly concerned about Hindenburg's allegations at the time. After all, short-sellers have a vested interest in seeing a stock's price decrease – which is exactly what happened following the report.
However, Supermicro postponed its annual report after the Hindenburg report was published. While this wasn't the best public image, I remained cautiously optimistic about Supermicro. Yet, in late October, Supermicro disclosed that its auditor, major accounting firm Ernst & Young, had resigned.
Given the high stakes associated with anything related to Blackwell, it's not surprising to learn that Nvidia is fine-tuning its supply chain protocols. For now, Supermicro's primary objectives should be to minimize any additional controversy and swiftly resolve its audit and annual filing matters. Unfortunately, addressing any Blackwell-related tasks will only further strain Supermicro at the moment, and failure to execute will only exacerbate the ongoing drama surrounding the company.
What should investors consider moving forward?
It's challenging to determine the exact volume of Blackwell orders that were allocated to Supermicro. Supermicro operates in an intensely competitive environment and isn't the only player in the field for data center storage clusters and server rack designs.
Since the Hindenburg report was published, Supermicro's stock has plummeted 58% (at the time of writing). Therefore, migrating Blackwell orders away from Supermicro will slow the company's growth and add another layer of unfavorable news, but it's debatable if its impact has already been factored into the company's share price to some extent.
Conversely, Nvidia shares have been performing exceptionally well recently. In fact, as of the time this article was written, Nvidia is the world's most valuable company by market cap, surpassing Apple by approximately $200 billion.
I believe this price action demonstrates the investor enthusiasm for Blackwell and what management might disclose during the third-quarter earnings report on Nov. 20. I'm intrigued to learn if shifting orders away from Supermicro will have any substantial impact on Blackwell shipments and how that will influence Nvidia's growth in the near term.
For now, both Supermicro and Nvidia's shares show heightened volatility, and I think it would be prudent for investors to remain on the sidelines and let the near-term Blackwell narratives unfold before making any investment decisions. AI is a long-term trend, and there will be numerous opportunities for investors to invest in either Nvidia or Supermicro at more reasonable prices in the future.
In light of the allegations made by Hindenburg Research about Supermicro's accounting controls and potential irregularities, Nvidia might be considering diversifying its partnership network to reduce its dependence on Supermicro's IT infrastructure. This potential shift could impact Supermicro's financial performance and stock price in the short term.
Given Nvidia's significant influence in the AI field and the high demand for its upcoming Blackwell chips, investing in Nvidia could be a strategic move for those looking to capitalize on the growth of AI technology, despite the potential complications surrounding its supply chain.