Markets were closed on Wednesday, but that didn’t stop Elon Musk from breaking some news that could be very material for Super Micro Computer (Nasdaq: SMCI) shareholders. On X, the platform he acquired in 2022, Musk seemed to confirm that Super Micro will be splitting a win for servers with Dell that are going to his AI company, xAI. Let’s look at the details.
The Background on Super Micro’s Sale
On Wednesday morning Michael Dell posted a tweet that showed dozens of servers readying for shipment.
We’re building a Dell AI factory with @nvidia to power @grok for @xai @elonmusk pic.twitter.com/2aTYLtCBup
— Michael Dell (@MichaelDell) June 19, 2024
Recently, there has been some controversy as e-mails were obtained by CNBC that showed Elon Musk asking NVIDIA to prioritize shipments of AI processors to both X and xAI ahead of Tesla.
xAI also raised $6 billion in Series B funding in May at a $24 billion valuation. Those funds were raised to build the company’s infrastructure and accelerate research and development. So, it’s unsurprising that the company is looking to use the fresh capital to invest in its data centers.
However, shortly after Dell’s tweet Elon Musk clarified that Dell would only be building half the racks going into the supercomputer xAI is building. In a follow-up Tweet, he seemed to confirm the other half would go to Super Micro Computer.
SMC
— Elon Musk (@elonmusk) June 19, 2024
What Impact Could This Have on Super Micro?
Super Micro’s stock has been on a winning streak across the past week, up 17% in the past five days. A large win with a customer like xAI trickling out could explain some recent enthusiasm.
While Super Micro continues to see sales skyrocket, the company has been under recent pressure. Dell‘s (NYSE: DELL) last quarterly report led to widespread commentary that AI server sales weren’t seeing higher margins than traditional servers. A key “thesis” surrounding server companies is that they can raise margins thanks to added complexity in AI servers.
Another pressure point has come from NVIDIA (Nasdaq: NVDA). The company is reportedly pushing large companies like Microsoft to buy their GB200 server racks exactly as designed by NVIDIA. If NVIDIA continues pushing further into server designs, this would move into the territory occupied by Super Micro and Dell.
Musk is known for claims that can be excessive but has claimed the newest model (Grok 3) from xAI could require 100,000 H100 chips from NVIDIA. That could lead to even more fundraising. Wall Street is expecting Supr Micro to book $14.9 billion in sales in 2024 and $23.6 billion next year, so a company with $6 billion in funding (and the possibility to raise more) largely earmarked for procuring computing power could be a very material win.
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