A major withdrawal from Nvidia could have a significant impact on the company’s upcoming Blackwell GPU launches.
No other company in the field of artificial intelligence (AI) is gaining more attention than Nvidia. (NVDA -0.84%) In the last few years. Nvidia’s role in the AI story is so prominent that any announcement it makes has the power to shake up capital markets at this point.
All eyes are on Nvidia and its partner network as the launch of the company’s new Blackwell graphics processing unit architecture (GPU) approaches. super microcomputer (SMCI -3.77%) is one of the players that has directly benefited from Nvidia’s booming GPU business over the past two years.
However, some recent reports suggest that Nvidia may be moving away from its dependence on Supermicro’s IT infrastructure and exploring partnerships elsewhere.
Let’s analyze the situation and assess what might influence Nvidia’s decision. Additionally, we explore how this news is impacting supermicro stocks and what it means for investors in the short and long term.
What did Nvidia do?
The launch of the Blackwell chip could be the most exciting AI event of 2024. NVIDIA CEO Jensen Huang boasted that demand for new chipsets is “insane.” Meanwhile, Morgan Stanley’s research team expects sales from Blackwell to be $10 billion in the fourth quarter alone. All of this is good news on the surface, but some wrinkles are emerging in the background that smart investors should be keenly aware of.
According to an article published in Digitimes, Nvidia is said to be moving Blackwell’s orders away from Supermicro and placing them with other IT architecture experts.
Image source: Getty Images.
Why is Nvidia moving away from Supermicro?
The past few months have been tough for Supermicro.
Back in August, Supermicro was the subject of a short report published by Hindenburg Research. Hindenburg claims that Supermicro’s accounting controls are weak, which essentially means something fishy could be going on with the company’s books and potentially the company’s financial outlook. It suggests that.
To be honest, I didn’t think much of Hindenburg’s argument at the time. After all, short sellers have a vested interest in seeing the stock fall, and that’s exactly what happened after the short report.
However, Supermicro has decided to postpone its annual report in response to the Hindenburg Report. Although this wasn’t the best outlook, I was cautiously optimistic about Supermicro. But then, in late October, Supermicro filed an 8-K filing notifying investors that its auditor, Big Four accounting firm Ernst & Young, had resigned.
Given how much is at stake in anything related to Blackwell, it wouldn’t be surprising to learn that Nvidia is reorganizing its supply chain protocols. For now, Supermicro’s top priority is to mitigate further disruption and get its audits and annual filings under control. Unfortunately, I think any work involving Blackwell will only add more pressure to Supermicro at this point, and any failure to execute will only lead to more drama surrounding the company.
What should investors see from here?
It’s hard to know exactly how large Nvidia’s Supermicro order with Blackwell was. Supermicro is not the only company that specializes in designing storage clusters and server racks for data centers operating in highly demanding environments.
Since the release of the Hindenburg report, Supermicro stock has fallen 58% (as of this writing). So while shifting Blackwell’s orders away from Supermicro would slow the company’s growth and suggest an additional nucleus of undesirable news, the impact is already to some extent baked into the company’s stock price. There is an argument that there is.
SMCI data by YCharts
On the contrary, NVIDIA stock has been showing some serious momentum lately. In fact, as of this writing, Nvidia is the world’s most valuable company by market capitalization, outselling Apple by about $200 billion.
This price action speaks volumes about how excited investors are about Blackwell and what management will reveal later this month when Nvidia reports its third-quarter results on November 20th. I think so. I would like to know if there is any material in moving orders away from Supermicro. Will it impact Blackwell’s shipments, and if so, how will it impact Nvidia’s growth in the short term?
For now, the stock prices of both Supermicro and Nvidia have seen tremendous volatility, and it is in investors’ best interest to sit on the sidelines and wait for the short-term story surrounding Blackwell to continue to unfold. I think so. AI is a long-term theme, and there are plenty of opportunities for investors to invest in Nvidia or Supermicro at more prudent times and at reasonable price points.
Adam Spatacco has held positions at Apple and Nvidia. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.
