Breakups are never fun. And in the case of Super Micro Computer(NASDAQ: SMCI), there’s a pretty clear reason why its longtime partner Nvidia appears to be moving on.
In late August, Supermicro came into the spotlight as the target of a short report written by Hindenburg Research. Shortly after, Supermicro delayed its 10-K filing before The Wall Street Journal reported the Department of Justice had launched a probe into the company. To matters worse, Ernst & Young resigned as Supermicro’s financial auditor due to concerns over the company’s reporting. In the midst of these falling dominos, the company was expected to be a major supplier of new storage clusters and server rack designs featuring Nvidia’s soon-to-launch Blackwell GPU.
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In this context, Dell Technologies(NYSE: DELL) could emerge as a winner from the Supermicro fallout. Here’s why the stock represents a great opportunity.
Nvidia has a lot on the line with the Blackwell launch, and any bump in the road at this stage of the game is unacceptable. But why might Dell be able to help in this situation?
Dell is known for consumer and enterprise computing devices, but it also has a big infrastructure solutions business, which is a fancy way of saying Dell provides networking services and products for data centers. Like Supermicro, Dell’s storage solutions and server designs are an integral component of the broader artificial intelligence (AI) industry. The reason for this is that data centers house chipsets such as Nvidia’s GPUs, which are an important piece of equipment for developing generative AI applications.
Perhaps the biggest reason Dell could be a winner from the Blackwell launch is due to some clues that management dropped during the company’s last earnings call. In August, Chief Operating Officer Jeffrey Clarke shared that the company has been selling its “most advanced architecture aligned to Blackwell to a number of customers.”
He followed this up by telling investors that Dell’s IT infrastructure backlog “is in all sorts of architectures,” but “[t]he vast majority [is] within Nvidia H100s, H200s, and Blackwell, as well as a couple of other opportunities around AMD and Intel.”
I don’t want to put the cart before the horse, but I see the above statements as a clear indication Dell is already working closely with Nvidia. More importantly, Blackwell is already shaping up to be a tailwind for Dell. Another way of looking at the Nvidia situation right now is that if businesses purchasing Blackwell GPUs can’t also ensure access to the chipset architecture services they need, demand for the new chips will likely stall.
Nvidia needs its IT infrastructure partners to be on the ball as the Blackwell launch looms, and with Supermicro’s problems showing no end in sight, it’s paramount that Nvidia identify other vendors to help — and quickly.
Image source: Getty Images.
In the chart below, you can see Dell benchmarked against a peer set of IT infrastructure providers by their forward price-to-earning (P/E) ratios.
DELL PE Ratio (Forward) Chart
Given all of the controversy surrounding Supermicro, it’s not surprising to see its valuation multiple contract so dramatically. On the contrary, Dell’s forward P/E of 17.1 has remained fairly steady for quite some time. Not only is Dell trading at a significant discount to Arista Networks, but the S&P 500‘s average forward P/E of 22.1 is also notably higher.
In my eyes, the market is drastically underestimating Dell right now. The company already has Blackwell-driven tailwinds fueling its near-term growth. And now, with Nvidia seemingly moving orders away from Supermicro and looking elsewhere, I’m surprised to see Dell’s valuation barely even move on this news.
While I don’t know for certain whether Nvidia has turned to Dell during this Supermicro fiasco, the Blackwell launch is shaping up to be a big deal for those involved. And given Dell has already shared with investors a good portion of its backlog is related to Nvidia in some fashion, it’s hard to see how an investment in Dell will yield lower returns than the overall market a year from now.
There’s currently a great opportunity to pounce on Dell stock, regardless of whether or not the company benefits from changes to Supermicro’s order flow.
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Adam Spatacco has positions in Nvidia. The Motley Fool has 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.
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