Elon Musk’s xAI will be using Supermicro’s servers to build its AI supercomputer.
Super Micro Computer (SMCI -0.26%) stock was surging Thursday morning to continue a strong push higher for the supplier of data center servers. Shareholders can thank Elon Musk for today’s move. After jumping more than 10%, shares were still trading higher by 7.7% as of 11:30 a.m. ET.
Supermicro, as the company is commonly called, provides server and storage system components for the massive data center buildout to quickly expand artificial intelligence (AI) computing capacity. While that is somewhat of a commodity business, Musk let it be known that his AI start-up xAI will be giving a large amount of business to Supermicro. That’s helping Supermicro stock extend the more than 20% gain it’s seen over the last week.
Elon Musk’s AI supercomputer
Musk just announced that Supermicro and Dell Technologies will both be providing servers and other server rack infrastructure to power xAI’s supercomputer. Supermicro confirmed Musk’s comments on the business with xAI to Reuters.
xAI has been reportedly planning to build a supercomputer to power the newest version of its AI chatbot named Grok. That’s great news for Supermicro as it continues to grow revenue as AI data center growth explodes. But there is one area investors should keep a close eye on, too.
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What investors need to watch
The AI buildout has helped Supermicro triple its revenue year over year in its most recently reported quarterly period. But at the same time, its gross margin dropped by more than 200 basis points in the quarter.
Dell similarly reported a large revenue jump in its Infrastructure Solutions Group, but investors were also concerned about that segment’s profitability. Some analysts were disappointed by those results and wondered if Dell’s AI servers were being sold at “near-zero margins.”
New business is coming in fast as AI infrastructure growth is booming. That’s enough to push Supermicro stock higher for now. But investors should also keep an eye on profit margin to see how much the bottom line will continue to grow along with sales.
Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.