Microsoft's Use of Nvidia's Blackwell may Impact Key Stocks

A report reveals how Microsoft's latest server rack featuring Nvidia's Blackwell chips could reshape competitive dynamics among AI-related stocks like Broadcom and Super Micro Computer, signaling mixed prospects ahead for investors.

Date: 15-10-2024

AI Rating: 5

Market Impact Analysis

The report highlights significant developments regarding Microsoft's adoption of Nvidia's Blackwell graphic processing units (GPUs) in its Azure cloud service. This decision may convey varying implications for stocks in the AI infrastructure segment, notably Broadcom and Super Micro Computer.

Broadcom Analysis

For Broadcom, reliance on its Ethernet technology to support AI workloads faces a setback, as Microsoft's new server utilizes Nvidia's InfiniBand technology. Despite this initial disappointment, the company is well-positioned in the custom AI chip market, with an expanding customer base from one to at least four. This growth trajectory could offset the impact of Microsoft's choice of technology.

Super Micro Computer Analysis

On the other hand, Super Micro Computer experiences an uphill battle with external concerns such as accounting allegations and declining gross margins, which decreased to 11.2% from 17% year-over-year. The introduction of Microsoft's own closed-loop cooling system diminishes Supermicro's competitive edge in providing cooling technologies for AI infrastructure. Nevertheless, the company's inexpensive valuation may attract risk-tolerant investors seeking exposure to the ongoing AI buildout.

Conclusion

Overall, while Microsoft’s recent technological adoption presents challenges for Broadcom and Super Micro Computer, the fundamental growth in AI infrastructure remains a common positive theme. Therefore, both companies still exhibit potential for benefiting from overall market trends, though with varying levels of risk and operational stability.

Stocks: NASDAQ:AVGO NASDAQ:SMCI NASDAQ:MSFT NASDAQ:NVDA