AMD could be Super Micro Computer's new best friend

Super micro computer (NASDAQ: SMCI), more commonly known as Supermicro, has seen its shares skyrocket by 2,220% over the past three years. This astonishing rise has been driven by the rapid expansion of artificial intelligence (Amnesty International) market, prompting data center operators to purchase more high-performance AI servers.

There could be a lot of growth for Supermicro Directly attributed to Nvidia (Nasdaq: NVDA), which provides cutting-edge GPUs that handle complex machine learning and artificial intelligence tasks. Nvidia has worked closely with Supermicro to design a new line of servers and workstations that fully support its H100 GPUs, and this close relationship has enabled Supermicro to create a high-growth niche with its AI servers in the highly commoditized market for pre-built servers .

However, Supermicro's reliance on Nvidia is a double-edged sword. It has struggled to secure a steady supply of GPUs from Nvidia in early 2023, and its biggest rivals – Hewlett-Packard Company And Dell Technologies — We're also working with Nvidia to design new AI-powered servers. In its most recent 10-K filing, Supermicro admitted that it does not have any long-term agreements with Nvidia or its other suppliers that would in effect make them exclusive partners.

For this AMD's (NASDAQ:AMD) The recent expansion in the data center GPU market could be great news for Supermicro.

Why can AMD catch up with Nvidia in the AI ​​race?

AMD controlled only about 17% of the discrete GPU market last year, according to Jon Peddie's research, putting it a distant second behind Nvidia with an 80% share. AMD's share consists primarily of gaming GPUs for PCs, but it is expanding its reach into the data center market with its Instinct GPUs for processing AI tasks.

AMD introduced the first batch of Instinct GPUs (MI6, MI8 and MI25) in 2017. It launched the latest MI300 Instinct GPUs, which are manufactured using… TSMC5nm and 6nm process nodes, late 2023. By many industry benchmarks, the high-end AMD MI300X outperforms the Nvidia H100 in terms of raw processing power and memory usage.

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This is a bright red flag for Nvidia, given that the H100, facing ongoing supply chain constraints, still costs about four times the price of the MI300. Nvidia claims the H100 still outperforms the MI300 when running optimized software, but that slight difference probably won't justify its premium price for cost-conscious data center operators.

That's why it wasn't surprising when AMD CEO Lisa Su recently said the MI300 was on track to be the “fastest revenue increase of any product” in the company's history. Su also estimates that AMD's Epyc CPUs have captured 25% of the server CPU market at the expense of Intel Corporation's (Nasdaq: INTC) Market leader Zions. Between the growth of these two companies and the expansion of its programmable chip business (from Xilinx), AMD has more data center assembly options than Nvidia.

Comfortable even AMD

Supermicro is already working closely with AMD to design servers for Epyc CPUs and Instinct GPUs. In November, Supermicro CEO Charles Liang predicted that AMD's MI300 GPUs, Nvidia's latest GPUs, and Intel's Gaudi AI accelerator chips would all “enjoy widespread adoption and expand our share of the accelerated computing market.” In January, Liang predicted that continued diversification would “more than double the size” of the company's AI portfolio.

If Supermicro sells more AMD-powered AI servers, it can reduce its long-term dependence on Nvidia and insulate itself from any future supply chain constraints. Competitive pressure from AMD could also push Nvidia to lower its GPU prices, which would boost Supermicro's gross margins by reducing its component costs.

A well-balanced play in the AI ​​market

Supermicro already generates nearly half of its revenue from its AI servers American bank It believes it can expand its share of the AI ​​dedicated server market from 10% today to 17% over the next three years.

That's why analysts expect its revenue to grow at a compound annual rate of 42% from fiscal 2023 (which ended in June) through fiscal 2026. That's an impressive growth rate for a stock that trades at just three times this year's sales.

This low valuation makes Supermicro an attractive long-term play in the AI ​​market, but its gradual diversification away from Nvidia with AMD-powered servers could make it a more balanced play in the AI ​​market than either chipmaker.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Liu Sun He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Bank of America, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and Super Micro Computer and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has Disclosure policy.

Forget Nvidia: AMD could be Super Micro Computer's new best friend Originally published by The Motley Fool