The artificial intelligence (AI) boom has ignited certain computer and technology sector stocks that are direct benefactors of AI deployment. It’s no secret that AI chipmaker NVIDIA Co. (NASDAQ: NVDA) is a top benefactor of AI demand as its GPUs are the essential component of AI servers.
Speaking of servers, companies that assemble AI servers and AI-powered supercomputers are also some of the biggest beneficiaries of AI deployment. One of the brightest stars was Super Micro Computer Inc. (NASDAQ: SMCI), which saw its stock surge from a post-split price of $9.50 in April of 2023 to a high of $122.90 almost a year later in March of 2024.
Hindenburg Research Alleges Accounting Misconduct
Unfortunately, shares have since collapsed 80% from the highs as allegations of accounting manipulation from short-seller Hindenburg Research cast doubts on management’s credibility. Management initially denied any of the claims but then delayed its 10-K filing to investigate internal controls. To further muddy the optics, its auditing firm, Ernest & Young, resigned, citing concerns over the company’s internal financial controls, governance and transparency.
The firm stated, "We are resigning due to information that has recently come to our attention, which has led us to no longer be able to rely on management’s and the Audit Committee’s representations.” This further propelled the stock over 30%. However, it’s also concerning that Ernest & Young flagged accounting issues in July before Hindenburg's bearish report was released on August 27, 2024.
Super Micro Cuts Forward Guidance for Fiscal First and Second Quarters of 2025
Super Micro provided preliminary lower guidance for fiscal Q1 2025 EPS of 75 cents to 76 cents versus 73 cents consensus estimate with revenues of $5.9 billion to $6 billion, falling short of $6.44 billion consensus estimates. The company cut guidance for its fiscal Q2 2025, with EPS sinking to the range of 56 cents to 65 cents versus 81 cents consensus estimates on revenues of $5.5 billion to $6.1 billion versus $6.84 billion consensus estimates.
Super Micro Attempts to Calm Investors
However, the company tried to assuage shareholders on November 5, 2024. stating, “The Special Committee has completed its investigation based on a set of initial concerns raised by EY. Following a three-month investigation led by Independent Counsel, the Committee's investigation to date has found that the Audit Committee has acted independently and that there is no evidence of fraud or misconduct on the part of management or the Board of Directors.
The Committee is recommending a series of remedial measures for the Company to strengthen its internal governance and oversight functions, and the Committee expects to deliver the full report on the completed work this week or next. The Special Committee has other work that is ongoing but expects it to be completed soon."
Super Micro also warned of the potential for Nasdaq delisting if they don’t file their 10-K or submit a plan to regain compliance by November 16, 2024.
Investors seeking an alternative to Super Micro Computer’s cloud of uncertainty can look at these 2 AI server makers also benefitting from the AI boom.
Dell Technologies: $3.8 Billion in Backlog for AI Servers
A major supplier of AI servers is Dell Technologies Inc. (NYSE: DELL). The company's NVIDIA-powered AI servers are the driving force behind its 9.1% YoY revenue growth to $25.03 billion in its second quarter of 2024. Its Infrastructure Solutions Group (ISG) posted record revenue of $11.6 billion, up 38% YoY in the quarter. Its servers and networking revenue surged 80% to a record $7.7 billion, driven by AI and traditional server demand.
Dell Technologies COO Jeff Clark stated, "Our AI momentum accelerated in Q2, and we've seen an increase in the number of enterprise customers buying AI solutions each quarter." Clark added, "AI-optimized server demand was $3.2 billion, up 23% sequentially, and $5.8 billion year to date. Backlog was $3.8 billion, and our pipeline has grown to several multiples of our backlog."
The AI boom is offsetting weakness in other segments such as Storage revenue falling 5% YoY to $5 billion. Its Client Services Group (CSG) revenue fell 4% YoY to $12.4 billion, comprised of commercial client revenue flat at $10.6 billion and a 22% YoY drop in consumer revenue to $1.9 billion. The market sees Dell stock as a viable swap out with Super Micro stock as its shares surged higher on each negative SMCI headline. DELL stock is up 75% year-to-date (YTD) compared to SMCI stock, falling 13.7% YTD.
Hewlett Packard Enterprise: A $171 Billion TAM from Hyperscalers and Service Providers
While NVIDIA's next-generation Blackwell GPUs are already sold out for the next 12 months, Hewlett Packard Enterprise (NYSE: HPE) has strengthened its partnership with Applied Micro Devices Inc. (NASDAQ: AMD) AI GPUs.
The company announced its HPE ProLiant Compute XD685 for complex AI model training tasks, which feature the AMD 5th Gen EPYC processors and AMD Instinct MI325X accelerators, during its first AI Day. The MI325X is AMD’s next-gen flagship high-performance AI GPU designed for (large language model) LLM inference and AI acceleration. Its AMD 5th gen EPYC processors are central processing units (CPUs) but with growing AI capabilities. Management sees a $171 total addressable market (TAM) with a 25% compound annual growth rate (CAGR) through fiscal 2027, with significant growth from hyperscalers and AI service providers.
The AI boom is accelerating with Hewlett Packard Enterprise as they reported a 35% YoY surge in its server revenue to $4.3 billion. Operating margin improved 70 bps to 10.8%. The server business accounts for nearly 55% of total revenue, which includes high-performance computing (HPC), AI, data analytics and integrated processing. Like Dell, its other segments offset the strength in AI servers. Its Hybrid Cloud segment revenue fell 7% YoY to $1.3 billion, comprised of its GreenLake hybrid cloud and AI infrastructure as a service (IaaS), AI analytics and Alletra storage solutions.
