Key Points
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Supermicro reported a notable margin improvement, yet the stock continues to face controversy.
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The positive developments at Supermicro could benefit Nvidia, which appears as the safer and smarter investment.
Super Micro Computer (NASDAQ: SMCI) shares rose nearly 20% on July 22 after the company pre‑announced strong preliminary results. Although second‑quarter revenue is projected at the low end of its $11 billion‑$12.5 billion range, that figure still represents roughly double the revenue from a year earlier. More importantly, the company forecast gross margins between 15% and 17%, well above its previous guidance of 8.2%‑8.4%.
Supermicro, which designs and assembles servers and rack solutions for data centers, has historically struggled with thin margins, so this improvement is welcome news. Nevertheless, the business remains inherently low‑margin, and the sudden margin boost is likely driven largely by ongoing supply shortages.
Shortages of critical AI infrastructure components—such as memory, CPUs, and GPUs—have led hyperscalers and enterprises seeking immediate, complete systems to pay a premium for integrated solutions from firms like Supermicro. A shift toward enterprise or sovereign customers, which typically have less purchasing power, can also enhance margins.
However, this dynamic may prove temporary; Supermicro remains largely a low‑margin middleman. The company also carries a history of controversy, including a June raid on its Taiwan offices related to alleged chip smuggling to China. Given these factors, avoiding Supermicro shares and instead purchasing Nvidia (NASDAQ: NVDA) looks like the safer and smarter move.
Image source: The Motley Fool.
Nvidia is the better stock to own
Because Supermicro and most other server integrators build their systems around Nvidia GPUs, the strong demand Nvidia is experiencing and its ability to improve margins highlight the current high‑demand environment for its chips and components. This trend can serve as a leading indicator.
When examining where most of the value lies, it resides with Nvidia and its GPU technology. Supermicro essentially passes on high GPU costs to its customers, which explains its high revenue but generally low gross margins. Nvidia, by contrast, maintains gross margins around 75%. Thus, favorable news for Supermicro translates into even better news for Nvidia, offering investors a more attractive company with considerably less controversy.
Supermicro’s preliminary Q2 figures show no slowdown in AI infrastructure demand. Meanwhile, earlier commentary and increased capital spending by leading foundry Taiwan Semiconductor Manufacturing suggest sustained long‑term demand. With the AI infrastructure leader trading at a forward P/E of about 16 times fiscal 2028 (ending January 2028) estimates, investors can confidently buy the stock of this high‑quality market leader without overthinking the valuation.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
