OpenAI’s ChatGPT spurred a new market in a few short months. AI-generated content has since diversified across platforms in a race to scale up for mass consumption. A consumption that demands renewed data centers and chip-making.

According to Forbes Advisor’s in-house survey on AI sentiment, AI integration is poised to give the US GDP a 21% boost by 2030. 

While Nvidia took the public spotlight with an impressive 217% YTD growth on the back of that demand, another player seems even better positioned for the AI gold rush. The lesser-known Super Micro Computer (SMCI) is up 248% this year.

Nvidia Clear AI Beneficiary?

It is no secret that Nvidia joined the exclusive $1 trillion market cap on the back of AI. The company pivoted strongly from a gaming GPU supplier to a data center supplier for generative AI needs. 

As of January 2023, Nvidia clocked $15 billion in revenue in compute & networking vs $11.9 billion in graphics, its previous bread and butter segment. As of Q2 2023, Nvidia’s revenue increased +101% year-over-year to $13.5 billion. Its net income is extraordinary, having increased by 843% for the same period.

Looking at these figures, one could easily see Nvidia in the role of selling shovels for the AI gold rush. However, it is important to remember that Nvidia is a semiconductor company in line with Intel or AMD. These companies eventually suffer profit drops as their core products are commoditized.

Such a product becomes standardized and widely available, so it is not easily differentiated from competing products. Looking ahead, this is why Nvidia accompanies its chips with a wide range of software suits, from Nvidia AI Enterprise to Fleet Command and Virtual Workstations (vWS). 

But how is that different from a hardware company like Super Micro Computer (SMCI)?

What Makes SMCI Special?

While Nvidia is laser-focused on powerful GPUs, SMCI offers a much wider range of hardware solutions. SMCI pioneered in developing servers, networking gear, and storage systems optimized for AI workloads. Headquartered in San Jose, California, SMCI spread its manufacturing wings beyond the US into the Netherlands and Taiwan.

Relative to its competitors in the tech sector as of Q2 2023, SMCI has a minor market share of 4.5% and 7% of the global server market, compared to Dell Technologies (58%) and Hewlett-Packard Enterprise (34%). Yet, SMCI has managed the global chip shortage far more effectively than both due to its diversified supply chain. 

Likewise, SMCI doesn’t face stiff competition from Lenovo and Huawei as Dell and HP. Most importantly,  cloud computing has left behind the demand for on-premises server and storage solutions. This is where SMCI comes into play as an established supplier for the big players: Google, Amazon, Meta, and Microsoft.

As of September, SMCI can manufacture 4,000 server racks per month. This is in line with an annual revenue range of $12 – 15 billion, according to Barclays analyst George Wang.

“Against the backdrop of AI investment trends, we believe SMCI is well-positioned to capture the rising AI server opportunity,”

As a broader hardware company, SMCI is even working with Nvidia to boost its server capacity. Forward-looking, this puts Super Micro in a position to reap the AI gold rush.

As both specialized and broader in server operations, SMCI is leading the AI pack, leaving less adaptive Dell and HPE behind. Image courtesy of TradingView

Considering Super Micro’s price-to-earnings ratio (P/E), it is sandwiched between Dell and HPE, at 23.8x vs 25.1x for Dell and 20x for HPE. The peer average is 17.3x

Looking back, SMCI has been profitable every year since its founding in 1993. To differentiate from competitors, SMCI adopted a server customization approach. Instead of mass-producing servers by “one size fits all” principle, Super Micro took the “building block” approach.

This resulted in SMCI’s product lines becoming more adaptive when the AI wave arrived, delivering more energy-efficient and cooled server designs. So far, Super Micro generated 52% of its revenue from AI hype last quarter at $1.13 billion. Year-over-year, that is a 33.59% increase as of June 30, 2023.

With sustained growth, the forecast will reach $4 billion out of $8 billion in total revenue by the end of 2023. In August, Nvidia traded 42 times over its profit earnings, while SMCI traded only 8 times.

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