Shares of artificial intelligence (AI) server specialist Super Micro Computer (SMCI -5.15%) were rallying in Monday trading, up 7.2% as of 12:04 p.m. ET.
The server maker plunged last week after the company's fiscal fourth-quarter earnings report, which showed booming revenue growth but also a decline in margins. But after last week's drubbing, along with the recent sell-off in AI-related stocks, Supermicro and other AI names are bouncing back strongly today.
Aiding the bounce was a weekend Wall Street Journal article featuring the company's new direct liquid cooling (DLC) products.
Liquid cooling could heat up SMCI's growth
On the Aug. 6 earnings report, Supermicro actually forecast near-100% revenue growth for the year ahead, which was well above analyst expectations, also but for a near-term decline in margins. Management attributed this to expedited shipping costs for direct liquid cooling components, due to excess near-term demand for these solutions.
Still, having so much demand that you need to pay for faster component delivery isn't the worst problem to have. Supermicro management also forecast for its margins to rise throughout the next 12 months.
This weekend's Wall Street Journal featured a piece on direct liquid cooling (DLC) technology. The article discussed Nvidia's upcoming Blackwell chip, which when put into a GB200 server will need to be liquid-cooled.
Two weeks ago, The Information reported that Blackwell would be delayed, due to a design flaw discovered late in the process. However, various analysts weighed in over the weekend, saying worries about the delay were overblown. UBS analyst Tim Arcuri reaffirmed his $150 price target on Nvidia, while saying the pushout would only be four to six weeks at most, leading only to a slight decline in his earnings-per-share projections for this year.
If that's the case, then there should be ample demand for DLC solutions over the next 12 months, given that GB200 servers require it. So, a brief delay wouldn't likely affect Supermicro's strong outlook.
Also encouraging for Supermicro specifically was the WSJ article noting some problems in DLC testing pertaining to leaks and other issues at some of Super Micro's Asian competitors, including Hon Hai Precision Industry, also known as Foxconn, as well as two other unnamed suppliers. People familiar with the matter said recent social media rumors around leaks and failures could be attributed to normal issues that come up in regular product testing.
Yet on last week's conference call, Supermicro CEO Charles Liang noted Supermicro had already shipped 1,000 liquid-cooled racks in both June and July, likely for Nvidia H100 and H200 servers, accounting for at least 15% of all global server deployments during those months. Liang also estimated Supermicro accounted for at least 70% to 80% of all DLC servers shipping today.
So, Supermicro is apparently first to market with working DLC solutions. And if Blackwell is only delayed by a few weeks, that could be a good combination for SMCI's stock.
AI investment seems set to continue
The recent sell-off no doubt has investors jittery, but there really isn't any evidence that AI investment is slowing down. If anything, big tech companies said this earnings season they would continue to increase AI investment this year and next. So as long there isn't a severe recession, the recent pullback could be an opportunity to pick up AI winners like Supermicro on the cheap.
