Breaking up is never fun. And in the case of Super microcomputer (NASDAQ: SMCI)there’s a pretty obvious reason why it’s an old partner Nvidia seems to go further.
In late August, Supermicro came into the spotlight as the target of a brief report written by Hindenburg Research. Shortly thereafter, Supermicro previously deferred its 10-K filing The Wall Street Journal reported that the Justice Department had launched an investigation into the company. To make matters worse, Ernst & Young resigned as Supermicro’s financial auditor over concerns about the company’s reporting. Amid these falling dominoes, the company was expected to become a major supplier of new storage clusters and server rack designs featuring Nvidia’s soon-to-be-launched Blackwell GPU.
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Apparently Nvidia has had enough. According to an article from Digitimes, Nvidia Blackwell is diverting orders away from Supermicro to avoid potential supply chain disruptions.
In this context Dell Technologies (NYSE: DELL) could emerge victorious from the consequences of Supermicro. This is why the stock represents a great opportunity.
Nvidia has a lot at stake with the Blackwell launch, and any bump at this stage of the game is unacceptable. But why should Dell help in this situation?
Dell is known for its consumer and enterprise computing equipment, but it also has a large infrastructure solutions business, which is a fancy way of saying that Dell provides data center networking services and products. Like Supermicro, Dell’s storage solutions and server designs are an integral part of the broader artificial intelligence (AI) industry. The reason for this is that data centers contain chipsets such as Nvidia’s GPUs, which are a key device for developing generative AI applications.
Perhaps the biggest reason Dell could be the winner of the Blackwell launch is due to some clues management dropped during the company’s latest earnings call. In August, Chief Operating Officer Jeffrey Clarke said the company has sold its “most advanced architecture aligned with Blackwell to a number of customers.”
He followed this up by telling investors that the backlog of Dell’s IT infrastructure “is in all kinds of architectures,” but “[t]he vast majority [is] within Nvidia H100s, H200s and Blackwell, as well as a number of other options nearby AMD And Intel.”
I don’t want to put the cart before the horse, but I see the above statements as a clear indication that Dell is already working closely with Nvidia. More importantly, Blackwell already appears to be a tailwind for Dell. Another way to look at the Nvidia situation right now is that if companies buying Blackwell GPUs can’t also guarantee access to the chipset architecture services they need, demand for the new chips will likely stagnate.
Nvidia needs its IT infrastructure partners to be aware as the Blackwell launch looms, and with Supermicro’s troubles showing no end in sight, it’s paramount that Nvidia identifies other vendors to help – and quickly .
The chart below shows how Dell compares to similar IT infrastructure providers based on their price-to-earnings (P/E) ratios.
Given all the controversy surrounding Supermicro, it’s not surprising that the valuation multiple contract is so dramatic. On the contrary, Dell’s price-to-earnings ratio of 17.1 has remained fairly stable for some time. Dell isn’t just trading at a significant discount Arista Networksbut the S&P500‘s average forward price-to-earnings ratio of 22.1 is also significantly higher.
In my opinion, the market is currently drastically underestimating Dell. The company already has Blackwell-driven tailwinds driving near-term growth. And with Nvidia apparently taking orders away from Supermicro and looking elsewhere, I’m surprised to see Dell’s valuation barely even moving on this news.
While I’m not sure if Nvidia has turned to Dell during this Supermicro fiasco, Blackwell’s launch is starting to become a big deal for those involved. And since Dell has already shared with investors that much of its backlog is tied in some way to Nvidia, it’s hard to see how an investment in Dell a year from now will yield lower returns than the overall market.
There’s a great opportunity to jump into Dell stock right now, regardless of whether or not the company benefits from changes in Supermicro’s order flow.
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Adam Spatacco has positions at Nvidia. The Motley Fool holds positions in and recommends Advanced Micro Devices, Arista Networks, Intel, and Nvidia. The Motley Fool recommends the following options: Short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Nvidia’s alleged blow for Supermicro could be a big win for this other artificial intelligence (AI) company was originally published by The Motley Fool
