Super Micro Computer (Nasdaq: SMCI) surged 15.81% on Wednesday. That’s a massive one-day jump, especially considering there was no company-specific news like earnings. However, there are events that factored into Super Micro’s jump. Positive research on the AI server market, AI announcements across the past 48 hours, and broader market enthusiasm all likely played a part in Super Micro’s gains. Let’s investigate each one in more detail.
1. Positive AI Server News
Morgan Stanley issued a report on Dell‘s (NYSE: DELL) AI server momentum that was very positive. Supply chain checks now believe a high-end of 40,000 to 50,000 server builds in 2024, but some supply chain sources believe this number could go as high as 60,000. Dell is a rival of Super Micro, but any news around AI servers that shows positive industry momentum is a net positive for the company. 40,000 servers would translate to about $10 billion in server revenue for Dell. For comparison, Wall Street currently estimates Super Micro will produce $14.9 billion in revenue this year.
Some other positives from Morgan Stanley’s report on Dell include:
- The researcher believes there is increasing AI server demand outside hyperscalers like Google and Amazon.
- While most AI server sales have been for training, demand for inferencing (which we’ll discuss in a moment) is another strong demand driver
- Morgan Stanley believes that demand for “sovereign AI” remains high. Since AI is becoming a strategic asset for countries, many will likely want their own servers located within a country. This should provide additional demand for companies like Super Micro.
Dell itself was up 11% today, which shows that this research from Morgan Stanley was seen as highly positive for the AI server market.
2. Major AI Product Announcements Across the Past 48 Hours
The biggest criticism around AI is that while companies are investing in it, there has been little revenue made from generative AI. The bear case would be that as user adoption of AI products stalls, investment will fall and companies like Super Micro and NVIDIA will see their share prices collapse.
That’s why product announcements this week have been so important. OpenAI announced its new ChatGPT-4o Model. The model is significantly faster than prior versions. You can watch the presentation from OpenAI here if you like, but it was extremely impressive and featured blazingly fast real-time language translation. Then less than 24 hours later, Google kicked off its I/O event and featured AI in almost every segment.
The key idea here is that two major events in two days focused on taking AI advancements and pushing them to widespread consumer adoption. So far most AI revenue has been for servers that train new models. But once models are trained, you need servers that can utilize their ability to make predictions, which is called inferencing. Another way to think of this is inferencing is simply getting results from a trained AI model.
So, when you see new AI features added to Google Search, or iPhones, or business software from Microsoft, these all require AI servers for inferencing. Simply put, the addition of new AI features across consumer software could be a massive demand boom for any company that’s in the AI server supply chain.
3.) The Broader Market Had an Outstanding Day
Any market data that points to the Fed dropping rates will be a major positive for companies like Super Micro or NVIDIA (Nasdaq: NVDA). The reason is that lower rates should spur economic activity. A lower rate environment also means more money for companies to pour into investments like AI servers. A CPI report released this morning showed inflation easing in April. That’s welcome news considering Fed Chair Jerome Powell said just yesterday that recent inflation growth has surprised him.
Technology stocks led the market today with the Nasdaq jumping 1.40%, which outpaced the S&P 500’s 1.17% gains.
One interesting note is that while the market was up strongly today, momentum in meme stocks like GameStop (NYSE: GME) and AMC (NYSE: AMC) finally stalled. GameStop was down 19% while AMC declined 20%. Of course, while these stocks have risen regardless of underlying financial results, Super Micro’s explosive returns over the past two years have happened because its sales and profits have risen an incredible amount.
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