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Dan Ives Expect $1 Trillion in Artificial Intelligence (AI) Infrastructure Spending in the Next 3 Years. Here’s My Top Pick to Benefit
Dan Ives is an equity research analyst at Wedbush Securities. He covers the biggest names in the technology sector, and always seems to have a bead on the latest megatrend.
Right now, artificial intelligence (AI) is the biggest headline-grabber in tech. But one area of AI that could be overlooked is information technology (IT) infrastructure. What does that even mean?
Here’s how infrastructure fits into the AI narrative, and why Super Micro Computer (NASDAQ: SMCI) is my top pick to play the trend.
IT infrastructure is a huge opportunity
Developing AI requires some sophisticated protocols across hardware and software. One of the most important pieces to this puzzle are chipsets known as graphics processing units (GPUs).
Nvidia and Advanced Micro Devices are two leading GPU developers at the moment, but other big tech stalwarts including Microsoft, Amazon, and Meta Platforms are looking to get in on the action.
Investing into these types of products falls under an accounting category called capital expenditures (capex). During a recent interview on CNBC, Ives suggested that AI capex will be a $1 trillion market during the next three years.
So with that said, why do I think Supermicro is a hidden gem?
Why Supermicro could benefit
Selling GPUs and accompanying software is only part of the equation. These important AI-powered products are housed in huge data centers. Within these data centers sit enormous storage racks that hold GPUs in very specific architecture designs. This is where Supermicro comes into play.
Supermicro is an IT architecture specialist that designs how GPUs fit in storage clusters. The company works closely with both Nvidia and AMD, and I see a couple of obvious catalysts on the horizon.
Specifically, sales of Nvidia’s new Blackwell series GPUs are projected to reach the multibillion-dollar mark by the end of the year, according to management and Wall Street analysts. I surmise Supermicro will be heavily involved in the specifics pertaining to how these new products will optimally be housed in data centers, and see Blackwell as an important tailwind for the company.
Furthermore, I would not be surprised to see Supermicro broaden its reach in the IT infrastructure landscape as others in big tech start releasing their own chips. To me, rising capex is an obvious catalyst that could power Supermicro’s business for years to come.
With all of this said, there are some important things to consider before pouring into Supermicro stock.
An attractive valuation, but be careful
Although Supermicro’s price-to-earnings (P/E) multiple has been coming down throughout 2024, the graph below illustrates some notable decline during the past couple of months.
There are two big forces that have led to a sell-off in Supermicro stock. First, the company’s earnings report from early August showed how volatile Supermicro’s gross margin can be. Ideally, growth investors want accelerating revenue, expanding margins, and rising profits. Supermicro’s business is not that straightforward.
Infrastructure businesses are going to carry lower-margin profiles than software businesses or companies with pricing power. Candidly, I think investors were simply hit with a reality check and need to accept that Supermicro’s profit margin may ebb and flow from time to time.
The other factor at play here is that Supermicro found itself the subject of a report published by short-seller Hindenburg Research in late August. While short reports are often perceived as a negative, there’s one important caveat to point out: short-sellers have a vested interest in seeing a share price fall.
Although Supermicro did delay the filing of its annual report after Hindenburg’s report claimed the company manipulated its accounting, not much else has come from the short report besides speculation and a cratering stock.
I will concede that investing in Supermicro carries some risk at the moment. But thinking longer-term, I see increased investments in capex and IT infrastructure as a secular tailwind that could fuel Supermicro’s business for the long run.
For these reasons, I see Supermicro as the best positioned company to benefit from opportunities in AI IT infrastructure.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Dan Ives Expect $1 Trillion in Artificial Intelligence (AI) Infrastructure Spending in the Next 3 Years. Here’s My Top Pick to Benefit was originally published by The Motley Fool
Sales of existing homes fell in September as house hunters remained on the fence about buying a home despite mortgage rates easing during the month.
Existing home sales slipped 1.0% from August’s tally to a seasonally adjusted annual rate of 3.84 million, the National Association of Realtors said Wednesday. That marked the lowest rate since October 2010. Economists polled by Bloomberg expected a pace of 3.88 million in September.
On a yearly basis, sales of previously owned homes were 3.5% lower in September. The median home price rose 3.0% from last September to $404,500, marking the 15th consecutive month of annual price increases.
“Home sales have been essentially stuck at around a 4 million-unit pace for the past 12 months,” NAR chief economist Lawrence Yun said in a press release.
There have been significant challenges that have weighed on sales activity, including a lack of inventory, escalating prices, and elevated mortgage rates. Last month, however, those factors turned around.
The Federal Reserve cut its benchmark rate by half a percentage point in September. While the central bank doesn’t set mortgage rates, its actions influence their direction of movement.
Mortgage rates hit the lowest level since February 2023 ahead of the Fed decision to ease, while listing inventory picked up.
But overall, that hasn’t been enough to entice buyers.
“Some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election,” Yun said.
Tesla (TSLA) reported mixed third quarter results after the bell on Wednesday, but the stock jumped in after-hours trading as investors cheered the earnings beat, higher gross margins, and news that Tesla’s cheaper EV is on track for production next year.
For the quarter, Tesla reported revenue of $25.18 billion vs. $25.4 billion per Bloomberg consensus, higher than the $25.05 billion it reported in Q2 and also topping the $23.40 billion Tesla reported a year ago. Tesla posted adjusted EPS of $0.72 vs $0.60 expected, on adjusted net income of $2.5 billion and free cash flow of $2.9 billion.
The closely watched gross margin figure came in at 19.8%, much higher than the 16.8% expected.
Tesla shares were up nearly 8% in after hours trade.
“We delivered strong results in Q3 with growth in vehicle deliveries both sequentially and year-on-year, resulting in record third-quarter volumes,” the company said in its earnings deck. “Preparations remain underway for our offering of new vehicles — including more affordable models — which we will begin launching in the first half of 2025.”
Earlier this month, Tesla (TSLA) announced third quarter deliveries that slightly missed expectations, sending the stock lower.
Tesla said it delivered 462,890 vehicles in Q3, up 6.4% quarter over quarter, to mark the first quarter of delivery growth this year. The numbers also came in ahead of the 435,059 EVs the company delivered in the year-ago period. But Wall Street had expected Tesla to deliver closer to 463,897, according to Bloomberg.
“Refreshed Model 3 ramp continued successfully in Q3 with higher total production and lower cost of goods sold quarter-over-quarter. Cybertruck production increased sequentially and achieved a positive gross margin for the first time,” Tesla said in its report.
Tesla said it expects vehicle deliveries to achieve “slight growth” in 2024.
Ahead of Tesla’s Q3 disclosure, shares were down approximately 11% since Tesla revealed its robotaxi, dubbed the Cybercab, at its showy “We, Robot” event from the Warner Bros. studio lot in Burbank, Calif., on Oct. 10.
The debut and release of a cheaper EV is what many analysts and industry watchers believe will spur the next leg higher of EV sales, as even CEO Elon Musk has said before. During its Q2 report, Tesla and Musk said the company remains on track for the production of new vehicles, likely including a cheaper EV, in the first half of next year.
Investors and analysts were left wanting more details from Tesla’s “We, Robot” event on the Cybercab itself and detailed testing plans, along with questions about the development of Tesla’s sub-$30,000 EV, dubbed the Model 2.
Transak disclosed a data breach affecting over 92,000 users after a phishing attack compromised an employee’s laptop.
CryptoCurrency
The Dow plummets more than 600 points and is on track for its worst day in more than a month
The Dow Jones Industrial Average and other major indexes suffered a steep decline Wednesday afternoon as the yield on the benchmark 10-year U.S. Treasury note continued its upward climb, reaching 4.23%—a level not seen since July.
In the afternoon, the Dow dropped 631 points, or 1.4%, heading for its worst day in over a month. Meanwhile, the tech-heavy Nasdaq and the S&P 500 declined by 2.2% and 1.4%, respectively. However, there was some relief for investors as oil prices eased, with West Texas Intermediate (WTI) futures trading around $70.65 per barrel.
The Federal Reserve’s Beige Book, released in the afternoon, reported that economic activity remained largely unchanged across the 12 Federal Reserve Districts, with the Southeast significantly impacted by a harsh storm season.
On Wednesday, all eyes are on Tesla (TSLA) as the company prepares to release its latest earnings report. Analysts expect earnings per share to be 60 cents, down from 66 cents a year ago but an improvement from 52 cents in the previous quarter, according to FactSet estimates. Revenue is projected to hit $25.4 billion, compared to $23.3 billion in the third quarter of 2023 and $25.5 billion in the preceding quarter.
Apart from Tesla, investors are closely monitoring earnings reports from other major corporations, including AT&T (T), Boeing (BA), and Coca-Cola (KO).
McDonald’s stock plunges over 5%
McDonald’s (MCD) shares took a sharp hit, falling over 5% after the Centers for Disease Control and Prevention (CDC) linked the chain’s Quarter Pounder burgers to an E. coli outbreak. The outbreak has led to 10 hospitalizations and one death, driving a significant decline in McDonald’s stock during the afternoon trading session.
As of now, 49 cases have been reported across 10 states between Sept. 27 and Oct. 11, with a majority of illnesses occurring in Colorado, Nebraska, Utah, and Wyoming. The CDC noted that most of those affected had eaten a Quarter Pounder. Investigators are working swiftly to identify the contaminated ingredient.
Spirit Airlines stock soars 30%
After a failed attempt at merging with JetBlue (JBLU-0.80%), ultra-low-cost carrier Spirit Airlines (SAVE+28.01%) is reportedly turning back to a familiar partner. The Wall Street Journal (NWSA-0.34%), citing people familiar with the matter, reports that Spirit and Frontier Airlines (ULCC+3.05%) are in early talks over a potential merger. The news sent Spirit’s stock soaring nearly 30% on Wednesday.
–Francisco Velasquez and Rocio Fabbro contributed to the article
The semi-autonomous region of Tanzania is taking advantage of a sandbox regulatory framework adopted in July.
Bitcoin’s correction ignited selling in altcoins, which are slipping below critical support levels.
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