NVIDIA is reportedly planning to move Blackwell orders away from Supermicro as problems mount for IT infrastructure designers.
Breaking up is never fun. And for super microcomputers (SMCI -3.36%)there’s a pretty clear reason why longtime partner Nvidia appears to be moving forward.
In late August, Supermicro was the subject of a short report produced by Hindenburg Research. Shortly after, Supermicro delayed its 10-K filing before the Wall Street Journal reported that the Justice Department had begun an investigation into the company. To make matters worse, Ernst & Young resigned as Supermicro’s auditor, citing concerns about the company’s reporting. In the midst of this domino fall, the company was expected to become a major supplier of Nvidia’s upcoming new storage cluster and server rack designs powered by Blackwell GPUs.
Apparently, Nvidia has had enough. According to a Digitimes article, Nvidia is separating Blackwell orders from Supermicro to avoid possible supply chain disruptions.
In this regard, Dell Technologies: (Dell -0.85%) It could emerge as a winner from Supermicro’s fallout. Here’s why this stock represents a great opportunity.
Why Dell is a winner
Nvidia has a lot planned for Blackwell’s launch, and difficulties at this stage of the game are unacceptable. But why can Dell help in this situation?
Dell is known for its consumer and enterprise computing devices, but it also has a large infrastructure solutions business. This is a fancy way of saying that Dell provides networking services and products for data centers. Like Supermicro, Dell’s storage solutions and server designs are essential components of the broader artificial intelligence (AI) industry. That’s because data centers house chipsets such as Nvidia’s GPUs, which are critical equipment for developing generative AI applications.
Perhaps the biggest reason why Dell could be a winner with Blackwell’s launch is due to some clues that management dropped during the company’s last earnings call. In August, Chief Operating Officer Jeffrey Clark said the company was selling “a cutting-edge architecture aligned with Blackwell” to many customers.
He went on to tell investors that Dell’s IT infrastructure backlog is “in all kinds of architectures,” but “the bulk of it is on Nvidia H100, H200, Blackwell, and a few other opportunities.” There is,” he said. AMD and Intel. ”
I don’t want to put the cart before the horse, but I think the above statement is a clear indication that Dell is already working closely with Nvidia. More importantly, Blackwell is already shaping up to be a tailwind for Dell. Another way to look at Nvidia’s current situation is that demand for new chips is likely to stall unless companies buying Blackwell GPUs also have access to the necessary chipset architecture services.
As Blackwell launch approaches, NVIDIA needs help from IT infrastructure partners. With no end in sight to Supermicro’s problems, it’s paramount that Nvidia quickly identifies other vendors who can help.
Image source: Getty Images.
Should you buy Dell stock now?
In the chart below, you can see how Dell benchmarks itself against comparable IT infrastructure providers by forward price/earnings (P/E) ratio.
Data by YCharts.
Considering all the controversy surrounding Supermicro, it’s no surprise that its valuation multiple has risen so dramatically. On the contrary, Dell’s forward P/E of 17.1 has been fairly stable for quite some time. Not only does Dell trade at a deep discount to Arista Networks, but its average forward P/E of 22.1 on the S&P 500 is also significantly higher.
In my eyes, the market currently appears to be significantly undervaluing Dell. The company already has tailwinds led by Blackwell that are driving near-term growth. And now that Nvidia appears to be moving away from orders from Supermicro and looking elsewhere, I was surprised to see little movement in Dell’s valuation on this news.
conclusion
It’s unclear whether Nvidia turned to Dell during this Supermicro fiasco, but Blackwell’s launch is shaping up to be a big deal for everyone involved. And given that Dell has already shared with investors that a large portion of its backlog is related to Nvidia in some way, an investment in Dell will yield a lower return than the overall market after one year. It’s hard to imagine that.
There’s a great opportunity to jump on Dell stock right now, regardless of whether the company benefits from Supermicro’s order flow changes.
Adam Spatacco holds a position at Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Arista Networks, Intel, and Nvidia. The Motley Fool recommends the following options: $24 November 2024 short call on Intel. The Motley Fool has a disclosure policy.
