At first glance, a review of artificial intelligence can feel like a deep dive into a vat of alphabet soup.
What's with all the acronyms? AI, GPUs, ASPs, CPUs--it's enough to make you put your head back and wail "ay, ay, ay."
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But this stuff is important if we're to believe any number of reports that tell us AI is here to reboot our reality.
Servers receive, store, and share data, and AI models work best on servers with good processing power.
Spending in the server market grew 64.1% in the second quarter, driven by high application service providers. The figure reflects higher shipments of graphics processing unit servers to hyperscalers and other large IT buyers, according to the market research firm IDC. Hyperscalers are major cloud services and infrastructure providers, such as Amazon and Alphabet.
An aging installed base is primed for refresh, and the launch of new generation processors late in 2023 is contributing to this cycle within 2024, as the tech transition to new [central processing unit] platforms gradually moved forward but has picked up the pace in Q2 2024," IDC said. A CPU is the core computational unit in a server.
IDC said that the market is expected to grow at a 16% compounded annual growth rate over the next five years.
Super Micro CEO: deployment in 'weeks, not months'
"The biggest impact and change to the forecast in this release is the addition of more expected demand for GPU servers, as well as a faster recovery in the short term of nonaccelerated servers," the firm said.
Super Micro (SMCI) saw its shares soar on Oct. 7 after the company, which makes high-end servers used in artificial intelligence, said that it recently deployed more than 100,000 GPUs with liquid cooling solutions “for some of the largest AI factories ever built, as well as other [cloud-service providers]."
Related: Analysts update outlook for Nvidia's Blackwell chips amid AI boom
“Super Micro continues to innovate, delivering full data center plug-and-play rack scale liquid cooling solutions,” Charles Liang, president and CEO of Super Micro, said in a statement.
“Our complete liquid cooling solutions, including SuperCloud Composer for the entire life-cycle management of all components, are now cooling massive, state-of-the-art AI factories, reducing costs and improving performance," he said.
Data center operators are "coming to Super Micro to meet their technical and financial goals for both the construction of greenfield sites and the modernization of existing data centers," Liang said.
"Since Super Micro supplies all the components, the time to deployment and online" is "weeks, not months," he added.
The company said many organizations require the highest-performing GPUs and CPUs to remain competitive and need these servers to run constantly.
"Super Micro's ultra-dense server with dual top-bin CPUs and 8 Nvidia (NVDA) HGX GPUs in just 4U with liquid cooling is the ultimate AI server needed in AI factories," the company said.
"When installed in a rack, this server quadruples the computing density, allowing organizations to run larger training models with a smaller data center footprint."
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Super Micro shares are down nearly 50% year-to-date. The company's stock took a beating late last month when The Wall Street Journal reported that the U.S. Department of Justice was investigating the company after short-seller Hindenburg Research alleged "accounting manipulation" at the AI-server maker.
Hindenburg said that it “found glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.”
Veteran analyst hesitates on SMCI
In his column on TheStreet Pro, Stephen "Sarge" Guilfoyle, a longtime Wall Street analyst and trader, says that taken together, the stock-price runup, the Hindenburg report and the Justice Department inquiry are "a whole lot of baggage where the outcomes remain uncertain. That is quite a bit to overlook when putting valuable capital to work."
Related: Short-seller blasts Super Micro stock in latest report
In a few weeks, Wall Street expects a strong quarterly report from Super Micro, with earnings doubling and revenue tripling, Guilfoyle says. "Seems awesome, right? Except that operating and free cash flows have been negative for three consecutive quarters," he says.
The balance sheet, he says, "is as healthy as a horse if one looks at current and quick ratios alone."
But he's concerned that a substantial chunk of its "current assets are in inventories when the firm is on the cutting edge of new technology all of the time," Guilfoyle says. "How much of those inventories will hold their value? I honestly don't know. What are the margins on the latest products that seem vital to Nvidia?"
Guilfoyle sums up his opinion on Super Micro, saying, "I am OK with a short-term trade as long as one understands what they are doing. What I will not do is invest on or against this name until we know more about the outcome. Risk management is rule number one when managing one's own capital."
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