Super microcomputer (NASDAQ: SMCI) And Nvidia(NASDAQ: NVDA) have both been winners during this artificial intelligence (AI) boom. Nvidia makes graphics processing units (GPUs) and other related products and services, while Super Micro Computer, also known as Supermicro, integrates GPUs – those from Nvidia and other chip designers – into its data center server systems. This has resulted in triple-digit revenue growth for both companies in recent quarters; The continued high demand is a positive sign for the future.
But lately, Supermicro has stumbled. In August, a brief report noted problems at the company, and at the same time, but in an unrelated manner, Supermicro postponed its 10-K annual report. A few weeks later, The Wall Street Journal reported that the Department of Justice was investigating the company. Supermicro’s problems worsened last month when the company’s accountant, Ernst & Young, resigned over concerns about the company’s financial reporting.
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Now it’s natural for investors to worry about the impact of these issues on Nvidia because of the relationship between the companies. But could one particular move by Nvidia protect it from Supermicro’s woes? Let’s find out.
Image source: Getty Images.
First, some more details about Supermicro’s recent situation, and then I’ll talk about how the company is working with Nvidia. A brief report in late August exposed the series of problems at Supermicro, with Hindenburg Research citing several issues, including “glaring accounting red flags.” Supermicro responded, calling the statements “false or inaccurate.”
Meanwhile, Supermicro postponed the filing of its 10-K annual report but told customers and investors that it did not expect significant changes in its fourth-quarter earnings or full-year results. But the pressure is still on for Supermicro to complete the 10-K: Nasdaq has sent the company a non-compliance letter due to the delay, and the company has until later this month to file or submit a plan serve to comply with the listing rules again. The company is therefore currently faced with the possibility of delisting.
As for The Wall Street Journal report on a possible Justice Department investigation, Supermicro declined to comment.
Ultimately, Ernst & Young resigned as Supermicro’s accountant at the end of last month. Ernst & Young stated that it could no longer “rely on the representations of management and the Audit Committee” and that it was “unwilling to be associated with the financial statements prepared by management.”
From the start of Supermicro’s problems with the Hindenburg report until today, the stock has lost 52%.
Now let’s see how Nvidia fits into the Supermicro picture. As Supermicro states in its 2023 annual report, large equipment orders “may require larger working capital commitments, which may require higher borrowings under our credit facilities to finance the purchase of key components.” And in recent earnings reports, Supermicro noted continued strong demand for its rackscale solutions that integrate Nvidia’s GPUs.
The risk here, given Supermicro’s current problems, is that the company could have trouble increasing borrowings to finance orders, and this could impact Nvidia’s earnings at least in the short term. The situation is particularly notable today as Nvidia prepares to launch its Blackwell architecture, a new platform that is in high demand.
Should we worry about Nvidia now? Well, the best chip designer may be taking the necessary steps to avoid significant supply chain issues and the impact on their sales. Nvidia would shift Supermicro orders to other suppliers DigiTimes Asia article.
This is positive as it should minimize the impact on sales and keep the supply chain flowing, but it is possible that Nvidia will experience some impacts in the short term. After all, Supermicro is one of the leading equipment manufacturers, and as demand for Blackwell exceeds supply, every player involved in bringing Blackwell to customers plays a key role.
Still, it’s important to take a long-term view on this situation, and if we do so, there’s reason to have confidence in Nvidia even as Supermicro navigates difficult waters. If the DigiTimes The report is correct, Nvidia is taking the right steps and any potential impact on Nvidia’s revenue or delay in order delivery in the short term should be mitigated thanks to these types of proactive steps.
Better yet, today’s potential impact won’t change Nvidia’s bright long-term view. Nvidia’s products and services are in high demand, and the company works with a wide range of players – from equipment manufacturers to cloud service providers – to ensure customers have access to them. All of this means that if Nvidia stock falls due to Supermicro’s recent troubles, it’s a fantastic buying opportunity.
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Adria Cimino has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Can this move by Nvidia protect the company from the problems of Super Micro Computers? was originally published by The Motley Fool
