① Ultramicrocomputers led the rise in S&P constituent stocks, reaching a record high in more than two months, and Dell's stock price reached a record high; ② Both are Nvidia industry chain companies; ③ Recently, many Nvidia AI server industry chain companies have sent positive signals.
“Science and Technology Innovation Board Daily”, May 16 (Editor Song Ziqiao) On Wednesday (May 15) local time, US stocks opened high, and the three major indices collectively closed to new record highs. Among them, the S&P 500 index closed up 1.17%, breaking the 5,300 mark for the first time, breaking the record high at the end of March.
Among individual stocks, ultra-microcomputers, known as the “AI weather vane,” are in the limelight. The stock surged 15.81% (closing at 952.36 US dollars/share), leading the rise in S&P constituent stocks, hitting a new high in more than two months.
Previously, the stock price of ultra-microcomputers plummeted due to the quarterly report falling short of expectations. Now, the cumulative decline since the release of the earnings report has been completely recovered.
Also, the competitor of ultra-microcomputers, Dell, which is also an AI server supplier, also surged. It closed up 11.21% on the same day, the biggest one-day increase for the stock since March 1, and the stock price reached a record high.
According to the news, Morgan Stanley analyst Erik Woodring released a report on Dell's AI server momentum on the same day. The report is very positive — it is expected that the market's uninterrupted demand for AI servers will increase Dell's sales, saying Dell is its preferred individual stock. Some supply chain sources currently believe that 40,000 to 50,000 high-end servers will be built in 2024, while other supply chain sources believe that this number may be as high as 60,000. 40,000 servers will bring Dell approximately $10 billion in server revenue.
In contrast, Wall Street currently expects ultra-microcomputer revenue to reach 14.9 billion US dollars this year.
In addition, new changes on the AI application side are also driving the stock prices of AI server companies represented by ultra-micro computers and Dell. In the early morning of Tuesday (May 14), Beijing time, OpenAI released a new ChatGPT-4O model. In less than 24 hours, Google launched another I/O conference with a very high “AI content.”
▍ Also an Nvidia partner
Both ultra-microcomputers and Dell are part of the Nvidia industry chain.
The servers sold by Dell use Nvidia's latest AI chips, including the H100 GPU and the latest Blackwell generation chips. At Nvidia's annual conference in March, Nvidia CEO Hwang In-hoon specifically mentioned that customers can order the latest AI chips through Dell. “You will need an artificial intelligence factory, and no company is better at building large-scale end-to-end systems for enterprises than Dell.”
Morgan Stanley analyst Woodring raised Dell's target share price from $128 to $152 and listed it as the preferred stock. In his report, he wrote that Dell is the original equipment manufacturer (OEM) with the strongest growth in AI server products.
Ultra Micro Computer is a supplier focusing on high-performance and efficient servers and storage systems. It is one of the top three server manufacturers in the world. It has long-term cooperative relationships with Nvidia and Microsoft, and has greatly benefited from the AI wave and Nvidia's core supplier status.
Commenting on the company's quarterly report, Ultramicrocomputer CEO Charles Liang (Charles Liang) emphasized the strong driving effect of AI on the company's sales. “Thanks to the strong demand for AI rack-scale plug-and-play (PnP) solutions and our team's ability to develop innovative DLC designs, the company's leadership position in the AI infrastructure market has been extended. The company's customer base is currently growing strongly. Had it not been for critical component shortages, deliveries would have been higher this quarter. We expect AI to maintain strong growth for many quarters (or even years) ahead.”
Based on the ratings of ultra-microcomputers from many Wall Street analysts in the past three months, they gave a target price in the price range of $800 to $1,500.
▍ What risks might ultra-microcomputers face?
In terms of stock prices, whether it's the current price or the cumulative increase this year, compared to ultra-microcomputers, the established manufacturer Dell is much inferior.
However, at the $1,000 mark, there are only a few risk tips for ultra-micro computers.
According to a recent article by investment research firm The Motley Fool, the gap between ultra-microcomputers and peers is hard to hide. Dell and IBM, in particular, are diverse businesses, and their integrated systems represent just one service out of many.
Also, in essence, IT architecture is a low-profit hardware business. As can be seen from the figure below, the increase in capital expenditure (capital expenditure) investment is affecting the operating profit margin of ultra-micro computers. If these trends continue, the free cash flow and overall liquidity position of ultra-microcomputers may be at risk in the long run.
Ultramicrocomputer gross profit margin (quarterly)
In the upcoming GB200 era, this situation will be even more pronounced. Inventec said during the French press conference that in the past, Nvidia provided GPU modules or substrates, and used motherboards designed by various companies to form server shipments. In the GB200 era, Nvidia became a motherboard supplier. In addition, in the architecture of shipping in the form of a cabinet, the core of server motherboards, network communication equipment, etc. are all in Nvidia's hands. Therefore, even though the unit price of the cabinet is high, the portion that can be converted into profit has shrunk quite a bit.
At the same time, ultra-microcomputers are facing more and more competitors. Recently, many Nvidia AI server industry chain companies have sent positive signals.
Zheng Hongmeng, chairman of IFF, predicts that in 2024, AI is expected to contribute 40% of the company's total cloud computing revenue, and AI servers account for 40% of the global market share; Cai Zhi'an, general manager of the OEM company Yingyeda, said that with a positive outlook for this year, revenue will definitely surpass 2023. AI server shipments will increase quarterly, accounting for 20% of overall server revenue this year. As for Nvidia GB200 servers, it is estimated that next year's sales volume is expected; Guangda also said that AI servers are expected to explode in the second half of the year. AI Server shipments are “ready”, and AI servers are expected to account for more than 50% of total server revenue this year.