Unveiling the Roaring Potential of AI Servers

Despite the 16-month milestone of ChatGPT’s launch, the AI realm is still in its nascent stages. Noted Nvidia CEO Jensen Huang forecasts that accelerated computing and AI will lead to a rapid doubling of data center installations, projecting a leap from $1 trillion to $2 trillion. Advanced Micro Devices CEO Lisa Su further anticipates a $400 billion AI chip market by 2027, with the majority of these chips dedicated to AI servers.

Supporting Su’s prophecy is Hon Hai Precision (OTC: HNHPF), known as Foxconn, which envisions a breathtaking 42% annual growth rate for the AI server industry, foreseeing a surge from $40 billion in 2022 to $400 billion by 2027 and a mind-blowing $1.3 trillion by 2032.

Backing these astounding projections is a recent IDC study sponsored by Microsoft, revealing a $3.50 return for every $1 invested in AI, with the top 5% of proficient companies yielding an impressive $8 ROI per dollar. Notably, futurist Ray Kurzweil hinted on a podcast that AI systems could outshine human intelligence by 2029, dubbing this estimate “conservative.”

Super Micro’s Commanding Stake Amid the AI Deluge

As the AI landscape thrives, Super Micro not only rides the wave but secures an additional slice of the pie by gleaning market share in the server industry amidst the AI switchover. The company’s triumph can be attributed to factors like its adaptable “Lego-like” server architecture, close affiliations with Silicon Valley chip developers, and a focus on energy efficiency and power-saving amenities such as liquid cooling.

In recent quarters, Super Micro proudly disclosed that over half of its revenue now stems from AI/GPU server systems, fueling an astounding 73% quarter-over-quarter surge and a 103% year-over-year leap last quarter.

Contrasting Super Micro with main rivals Dell Technologies (NYSE: DELL) and HP Enterprise (NYSE: HPE), these original equipment manufacturers exhibit a lower proportion of server revenue generated from AI systems. While Dell registered AI-optimized server revenue of $800 million, constituting a mere 8.5% of its total infrastructure segment revenue, HPE attested that approximately 25% of its server orders since the beginning of last year were for accelerated computing/GPU systems.

Super Micro’s principal competition might not originate from these large brandished OEMs; rather, the “white label” ODMs like Foxconn that supply components directly to major cloud entities who craft their servers and also vend parts to other big OEMs such as Dell and HP. Last earnings call, Foxconn indicated that only around 30% of its 2023 server revenue derived from AI servers. Despite witnessing a 100% growth in parts like GPU modules, Foxconn anticipates an overall 40% AI server growth this year, projecting AI servers to represent about 40% of its total server revenue by 2024.

An Awe-Inspiring Leap to Prominence

Confirmation of Super Micro’s recent ascent arrived with its admission into the S&P 500 index, officially announced earlier this month but taking effect today. Sporting a $60 billion market cap, both Super Micro and fashionable footwear enterprise Deckers Outdoor will supplant Whirlpool and Zion’s Bancorp in this esteemed index today.

Beyond the honor of breaching the echelons of the top 500 U.S. companies, Super Micro might reap benefits from the “forced buying” of shares by index funds designed to mirror this index. Notably, index funds that mimic this “generic” index are the most favored type globally, signaling substantial stock acquisitions scheduled to commence this week.