Super Micro Computer earnings are crucial for AI sentiment

Key points

• Super Micro Computer's performance and market concerns: Super Micro Computer (SMI) has been the best-performing stock in the S&P 500 Index this year, up 120%, but is down 50% from its peak in March. There are concerns about the sustainability of large AI investments, with worries that AI capital expenditures are growing too fast relative to adoption, potentially impacting the entire AI ecosystem.
  
  
• Critical role of SMI in AI infrastructure: SMI is a key supplier of critical infrastructure for AI data centers. The company's earnings report is important for investor sentiment in the AI sector, as it could impact valuations across all AI-related stocks, including Nvidia, AMD, Microsoft, and Alphabet.
  
  
• Expectations and key metrics: SMI is expected to report FY24 Q4 earnings with a revenue estimate of $5.32 billion and EPS of $8.25. Analysts will closely watch the company's outlook for the next quarter and fiscal year, especially in light of Nvidia's potential delay in launching its next-generation AI chip, which could affect the GPU spending cycle and SMI's performance

Can Super Micro Computer earnings calm investors over AI demand?

Super Micro Computer (SMI) has been the best performing stock in the S&P 500 Index this year up 120% eclipsing even Nvidia, but down 50% from its peak in March. Starting in July, the market has begun to worry about the AI theme and whether the large investments can be sustained. We saw this with investors worrying after earnings from Alphabet (Google) and Microsoft that capital expenditures on AI are growing too fast relative to adoption of AI workloads. This is unsustainable for the entire AI ecosystem long-term. David Cahn from Sequoia recently highlighted a critical observation about AI spending which is that the AI industry needs to generate $600bn in revenue to sustain the expected GPU spending level in Q4 2024. It is quite uncertain at this point whether the industry can achieve this revenue threshold this fast.

SMI is part of the AI ecosystem and reports FY24 Q4 (ending 30 June) earnings tomorrow. Why is SMI earnings important for sentiment in AI? The company is a rack-scale solutions provider and therefore a key supplier of critical infrastructure for AI datacentres and thus crucial for assessing the current state and future prospects of the AI industry. If SMI indicates weaker demand it will impact equity valuations across all AI related stocks such as Nvidia, AMD, Microsoft, and Alphabet (Google).

Here are the key information to know ahead of the release:

• Reporting time: After the US market close.
• Revenue estimate: $5.32bn up 143% YoY, but revenue growth QoQ is cooling fast as the chart below shows.
• EPS estimate: $8.25 up 141% YoY
• What to look for: Analysts expect FY25 (ending 30 June 2025) revenue of $23.6bn, so SMI’s outlook for next quarter revenue or even the new fiscal year will prove critical to the share price. Focus will especially be on the news over the weekend that Nvidia is delaying its launch of its next-generation AI chip B200 because it may delay the GPU spending cycle which is what SMI is benefiting from.

This is what SMI said in its previous earnings report:

“Strong demand for AI rack scale PnP solutions, along with our team’s ability to develop innovative DLC designs, enabled us to expand our market leadership in AI infrastructure. As new solutions ramp, including fully production ready DLC, we expect to continue gaining market share. As such, we are raising our fiscal year 2024 revenue outlook from $14.3 to $14.7 billion to a new range of $14.7 to $15.1 billion.”