Super Micro Computer Inc., a chip company, has experienced a significant shift in its stock outlook after a surge in AI training activities. This shift has led Wedbush analyst Matt Bryson to upgrade the company’s stock rating from underperform to neutral. In his report, Bryson acknowledges that he missed the fundamental shift that occurred in the latest quarter, which served as the foundation for Super Micro’s optimistic full-year forecast.
The investment in generative AI training has seen remarkable growth from March to June, benefiting Super Micro. Despite the company’s outlook for the current quarter implying a pause in business, Bryson does not view this as a concern. Instead, he believes it aligns with conversations suggesting that a shortage of graphics processing units (GPUs) is governing the near-term AI server shipments, rather than a decline in demand. This is consistent with management’s statement that the company’s growth expectations for fiscal year 2024 depend on component availability.
With Nvidia Corp. set to report earnings, Bryson believes that whatever the outcome of their commentary, it will likely be seen as a positive indicator for Super Micro. If Nvidia provides a positive outlook regarding AI chip demand, this could suggest upside potential for Super Micro’s own third-quarter forecast. Conversely, if Nvidia’s forecast is more conservative, it could still be received positively as continued constraints would support AI server pricing and gross margin metrics.
Super Micro has acknowledged supply constraints related to Nvidia chips. However, Bryson now sees a lower likelihood of Super Micro experiencing a downside event in the next few quarters. While he still believes the company may face structural market issues in the future (such as average selling price and margin compression for AI servers), he expects these challenges to arise only after improvements in the availability of Nvidia GPUs, which may not occur until well into 2024.
Super Micro’s stock has performed exceptionally well this year, more than tripling in value. As of Wednesday’s premarket trading, the stock was up nearly 1%.
In summary, Super Micro’s stock outlook has taken a positive turn due to the surge in AI training activities. Wedbush analyst Matt Bryson has upgraded the stock rating based on the company’s optimistic full-year forecast. The dependence on Nvidia’s earnings report further adds to the potential positive reception for Super Micro. While challenges may arise in the future, Bryson sees limited likelihood of these issues affecting the company until improvements in GPU availability are made.