Super Micro Computer stock surged Friday as earnings from artificial-intelligence server peer Dell Technologies had investors excited about the growth ahead for hardware stocks. But Dell’s success could also be a red flag for Super Micro shareholders.
Super Micro stock jumped 10% to $45.48 on Friday following Dell’s report. Dell stock also soared, after the company said Thursday night that quarterly revenue for its AI-optimized servers rose 757% from the prior year.
Super Micro is another big U.S.-listed player in the AI server market. Friday’s stock move suggests Wall Street is confident that server companies will continue to see broad demand, as customers keep buying up the hardware needed to power AI. But investors snapping up shares today could be missing a crucial point: Dell might owe some of the quarter’s success to taking market share from Super Micro.
The legal issues for Super Micro’s co-founder could be playing into this, Melius Research analyst Ben Reitzes told Barron’s.
In March, the U.S. government charged the company’s co-founder Yih-Shyan “Wally” Liaw with an alleged plan to smuggle U.S.-assembled servers to China. Liaw pleaded not guilty, according to reports. Super Micro isn’t a defendant in the case and has said it is cooperating with the government. The company also launched its own investigation into the matter, and CEO Charles Liang has said the company has “zero tolerance” for federal law violations.
Several analysts wrote earlier this year that while Super Micro would likely remain a leader in AI server technology, the investigation could shift some orders to Dell. Reitzes said Friday he thinks that has been the case.
“If you’re a public company like CoreWeave and Tesla and others, you really have to think twice about your Super Micro relationship, which they’ve already done, and you’re seeing Dell get some of the benefits,” Reitzes added.
When asked to comment, Super Micro pointed Barron’s to its May 5 earnings call where Liang addressed concerns that customers would move to other server vendors.
“We are growing our customer base, like last few quarters last year. Now we have many more large customers and mid-sized customer. And from our experience, work with customers, communicate with customers, most of the customers either feel pretty solid to continue our business and continue to grow together,” Liang said.
Dell didn’t immediately respond to a request for comment. Management said on its earnings call Thursday night that its customer count has surpassed 5,000. That’s up from February, when Dell said on its earnings call that its customer base surpassed 4,000.
“Our differentiated offering continues to resonate and our expanding platforms and capabilities are supporting continued share gain,” the company said Thursday.
SuperMicro is still in a position to benefit from the growing need for AI power, though.
“The overall AI trends are very strong,” Reitzes said. “So perhaps even though they’re gonna lose share, the compute is in such shortage…and they are associated with compute. So to that degree, they do benefit.”
On May 5, SuperMicro reported better-than-expected quarterly earnings and gave earnings guidance for the current June quarter that was higher than analysts’ consensus call.
“Our business continues to grow and expand,” Liang said on the May earnings call. “Indeed, our backorder is now in another record high.”
SuperMicro wasn’t the only server stock to reap the benefits of Dell’s strong earnings on Friday. Shares of Hewlett Packard Enterprise, which is set to report its own earnings on Monday, jumped 14% to $43.45.
The effect also wasn’t limited solely to server companies. HP—which focuses on consumer-facing devices such as notebook computers—rose 6.6%.
HP reported better-than-expected earnings on Wednesday but the initial market reaction was muted, as analysts noted concerns about the rising cost of memory components.
