Super Micro’s Fate Lies in Nvidia’s Hands
The troubled AI server maker needs chip allocations, but Nvidia doesn’t need more scrutiny over China
If Super Micro Computer SMCI 5.11%increase; green up pointing triangle survives its latest scandal, it can thank the law of supply and demand—and Nvidia NVDA 1.70%increase; green up pointing triangle.
Super Micro got hit hard last week after one of its board members was arrested by federal authorities under charges of helping to smuggle Nvidia chips to China. Yih-Shyan “Wally” Liaw is also a co-founder of the company, which specializes in the sort of servers needed to run artificial-intelligence workloads.
Another employee and a contractor were also indicted as part of the scheme, though Super Micro itself wasn’t named as a defendant. Super Micro’s shares lost one-third of their value on Friday after the news.
Ultimately, Super Micro’s fate will rest solely on whether it can continue getting allocations of GPU chips from Nvidia. With them, there is enough demand for its business to continue, scandal or no. Losing that access would have a “devastating impact” on the company’s business, Bernstein Research analysts wrote in a report.
In a statement, Nvidia says strict compliance with export controls is a “top priority,” but it didn’t address whether it would continue supplying chips to Super Micro.
Super Micro’s stock clawed back some ground Monday as the market bounced on the latest Iran war development. But the shares remain down 26% for the year.
That’s a notably poor performance for a company selling the sort of “picks and shovels” that are still in red-hot demand three years into the AI spending boom.
Super Micro has been no exception. The company’s revenue more than doubled to $12.7 billion in the December quarter, and it sees the pace continuing, with revenue for the June-ending fiscal year expected to hit $40 billion.
That is nearly double the previous year and almost 10 times what Super Micro averaged on an annual basis before AI demand started boosting its sales in 2023.
Super Micro’s ability to deliver such growth is a testament to how scandal-proof the current AI market has proven to be. The company came under scrutiny in 2024 when short seller Hindenburg Research published a scathing report about the company’s accounting practices. That eventually led to Super Micro’s independent auditor bailing and a probe by the Justice Department.
Liaw’s position was actually one of the sore points from the Hindenburg report. He had previously resigned from the company in 2018, after an investigation by its audit committee led to a restatement of Super Micro’s financial results. He was hired back in 2022 and named to the board a year later.
That round trip looks particularly bad now, given the latest developments. “Despite Super Micro not being named as a defendant, this raises serious credibility issues that could impact business,” Bernstein analysts wrote in their report last week.
Mehdi Hosseini of Susquehanna says last week’s indictment “only underscores the urgency” of replacing Super Micro Chairman and Chief Executive Charles Liang with someone from the outside, in addition to refreshing the entire board with fully independent directors. The 33-year-old company still often burns cash on a quarterly basis due to a high-cost business model of trying to quickly customize AI servers for large customers.
That has also resulted in a weak bottom line; Super Micro’s gross profit margins hit a record low of 6.3% in the latest quarter, despite booming sales in the period. Hosseini noted in a report that Super Micro’s executive compensation “has long been tied disproportionately to top-line growth, despite weakening underlying financial quality.”
As it weighs further chip allotments to Super Micro, Nvidia holds all the cards. It could likely make up any lost sales from Super Micro quickly—especially given the launch of its new Vera Rubin lineup later this year.
Nvidia also has to maintain its delicate position of pushing for access to the Chinese market without running afoul of the Trump administration’s aim of keeping the most advanced AI technology out of China’s hands.
The alleged ability of Liaw and his crew to siphon off Nvidia’s top-of-the-line B200 chips doesn’t help that case. Even the likelihood of selling $40 billion worth of servers might not keep Super Micro from being deemed more trouble than it’s worth.