Actions of the Artificial Intelligence (AI) Server Specialist Super microcomputer (NASDAQ: SMCI) were higher in Monday trading, up 7.2% as of 12:04 p.m. ET.
The server maker plunged last week after the company reported fiscal fourth-quarter results, which showed stellar revenue growth but also declining margins. But after last week’s rout, as well as the recent selloff in AI-related stocks, Supermicro and other AI names are rebounding strongly today.
Helping the rebound was a weekend Wall Street Journal article introducing the company’s new direct liquid cooling (DLC) products.
Liquid cooling could accelerate SMCI’s growth
In its August 6 financial results report, Supermicro actually forecast revenue growth of nearly 100% for the coming year, well above analyst expectations but with near-term margin declines. Management attributed the result to accelerating shipping costs for direct liquid cooling components, due to near-term excess demand for these solutions.
However, having such strong demand that requires paying for faster delivery of components is not the worst of the problems. Supermicro’s management also expects its margins to expand over the next 12 months.
This weekend Wall Street Journal presented a paper on Direct Liquid Cooling (DLC) technology. The paper discussed Nvidiathe next Blackwell chip, which, once integrated into a GB200 server, will have to be liquid cooled.
Two weeks ago, The Information reported that Blackwell would be delayed due to a design flaw discovered late in the process. However, several analysts weighed in over the weekend, saying concerns about the delay were overblown. UBS Analyst Tim Arcuri reaffirmed his $150 price target on Nvidia, while saying the delay would only last four to six weeks at most, resulting in only a modest decline in its stock price. earnings per share projections for this year.
If so, demand for DLC solutions should be strong over the next 12 months, given that GB200 servers require them, so a brief delay would likely not affect Supermicro’s favorable outlook.
What has also been encouraging for Supermicro in particular is WSJ article reporting some issues in DLC testing related to leaks and other problems at some of Supermicro’s Asian competitors, including Hon Hai Precision Industryalso known as Foxconn, as well as two other unnamed suppliers. People familiar with the matter said recent rumors on social media about leaks and outages could be attributed to normal problems that arise during regular product testing.
Yet, during last week’s conference call, Supermicro CEO Charles Liang noted that Supermicro had already shipped 1,000 liquid-cooled racks in June and July, likely for Nvidia’s H100 and H200 servers, representing at least 15% of all global server deployments in those months. Liang also estimated that Supermicro represented at least 70-80% of all DLC servers shipping today.
So Supermicro is apparently the first to market with working DLC solutions. And if Blackwell is only delayed by a few weeks, that…
