By After a strong start to the year, shares of Super Micro Computer (NASDAQ: SMCI) have been under a lot of pressure following a disappointing earnings report, unwanted attention from a notable short-seller, the delay of its annual 10-K filing, and a possible investigation by the Department of Justice (DOJ). However, the stock rallied after the company put out a press release that mentioned its quarterly shipment volume.
Against that backdrop, let’s take a closer look at the company’s recent announcement, what it means, and whether it can be the start of a bigger rebound for the stock.
Over 100,000 GPU shipments
As part of an announcement introducing new cooling technology, Supermicro slipped into the press release headline that it is currently shipping over 100,000 graphics processing units (GPUs) per quarter. It clarified in the release that it has recently deployed more than 100,000 GPUs with direct liquid cooling (DLC) solutions for some very large data centers built to power artificial intelligence (AI) applications.
Now, it is important to understand what exactly Supermicro does as it relates to this statement. It does not design GPUs like Nvidia or manufacture them like Taiwan Semiconductor. What it does is purchase components, such as GPUs, and then design and assemble servers and rack solutions for customers.
The company doesn’t offer the same level of support as branded servers made by Dell, but it sells them at much lower prices. Supermicro has also carved out a niche by being one of the first server companies to embrace DLC. GPUs generate a lot of heat, so they must be kept cool to avoid failure and to help save on energy costs.
To promote this technology, Supermicro is charging the same price as the more standard air-cooled systems. While Dell also has DLC technology, it is just starting to ramp it up, so Supermicro has a first-mover advantage.
Selling a lot of high-priced GPUs will boost revenue, but the company is not collecting a big markup on those chips. As such, it has quite low gross margins, which have come under pressure recently. Last quarter, its gross margin dropped to 11.2%, down from 17.0% a year go. By comparison, Nvidia reported a gross margin of 75% in its latest quarter, while contract manufacturer Taiwan Semiconductor had a gross margin of 53%.
The question, of course, is what comes next? There are a number of scenarios where the stock can rally, but Supermicro remains a risky pick because of the uncertainty surrounding its annual report and the possible DOJ investigation. Investors should approach the stock with caution.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Super Micro Computer Shares Surge on Shipment News. Can the Stock Continue to Rebound? was originally published by The Motley Fool
