SMCI Earnings vs. Competitors: Can Super Micro Outperform Nvidia and Dell

Super Micro Computer (SMCI) is one of the hottest names in technology investing today; SMCI's revenues and successes in designing and manufacturing high-performance server systems, storage systems, and Artificial Intelligence infrastructure have led to tremendous advancements across Cloud Computing platforms and various Artificial Intelligence Applications. As such, when SMCI provides its quarterly earnings report, investors all over the world take note of their results, as they are a clear representation of where the AI Technology Hardware Industry is heading.

Company earnings are quite similar to a student's report card; just as school grades reflect how well a person performed in their classes, so too do earnings indicate how effectively a company executed its overall business strategies. When reviewing SMCI's financial data, investors should look at the company's revenue growth, gross profits, and whether or not SMCI was able to achieve Wall Street's expectations.

How Super Micro Makes Money

The growth of SMCI is supported by their diversified revenue streams, which decrease risk as compared to most firms relying on a single source of revenue. SMCI generates the majority of its revenue through sales of fully integrated server and storage infrastructure to cloud service providers, data centers, and organisations. These infrastructure solutions are not typical "retail" purchases but rather highly customized high-density computing solutions which are not easily replicated elsewhere in the marketplace.

The emergence of AI hardware will increase demand for servers capable of meeting the compute demands associated with training and running large language models (LLMs) and thus produce tremendous volumes of heat. As such, SMCI’s liquid cooling solutions have become especially attractive to clients developing AI solutions.

SMCI's Competitive Landscape

Nvidia is not a direct competitor of SMCI in the area of servers but does dominate the GPU market that drives AI computing. The sheer volume of revenue produced by Nvidia and the gross margins exceeding 70% for their products in comparison to the rest of the technology sector allows Nvidia's earnings to dominate the rest of the industry. Their revenue growth has been astronomical due to the rapid growth in AI-based demand. Therefore, when Nvidia announces record Q4 earnings, this will also produce a positive impact on all other companies within the AI infrastructure sector, including SMCI.

On the other hand, Dell's size and scale allow it to have a much lower per-unit selling price through its server offerings than does SMCI. The way in which Dell operates, through available financing options, service offerings, and long-standing corporate relationships, gives them the ability to provide an overall competitive advantage over SMCI. This is reflected by the trends in Dell's earnings as they are seeing growth that is consistent with the trends in overall enterprise IT spending.

Breaking Down SMCI's Latest Earnings

In revenues, SMCI reported revenue of $5.3 billion in the most recent quarter, a year over year increase of roughly 200%. Yes, that's correct, approximately 3x the amount of revenue earned in this same quarter a year ago. This significant increase is atypical of a business the size of SMCI and is indicative of the incredible demands for AI Infrastructure.

When net income and earnings per share were reported, there was positive growth; however, the numbers are not in-line with the revenue increase. This likely indicates SMCI invested heavily in order to scale the operational side in response to the rapid increase in demand for their products.

SMCI vs Nvidia: The AI Hardware Showdown

NVIDIA's current earnings for Q1 2023 were $18.1 billion. A significant portion of their earnings is derived from the data center segment, which contains their AI GPUs, with gross margins exceeding 70% in Q1 2023, solidifying NVIDIA's dominance in revenues from AI chips. All other manufacturers of AI chips are nowhere near achieving the financial performance of NVIDIA.

On the contrary, SMCI achieved revenue of $5.3 billion, which is dwarfed by NVIDIA; however, if you compare year-over-year revenue growth rates, the picture looks very different. NVIDIA grew year-over-year by approximately 170%, while SMCI grew year-over-year at approximately 200%. So, while they are deriving from the same AI growth opportunity, the manner in which they are doing so is different.

Trading SMCI: Practical Strategies

To create profits from analyzing earnings, active traders must apply a strategy rather than simply applying information. The following provides insight to how active traders view SMCI in regards to earnings. Earnings-induced trading generally tends to be speculative due to the immediate volatility and lack of certainty. Traders may purchase options prior to earnings with hopes of a large price movement in either direction, commonly found in straddle and strangle strategies. Other traders will examine the initial reaction and will look to fade any overextended reaction.

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