Dan Ives expects $1 trillion in spending on artificial intelligence (AI) infrastructure over the next 3 years. Here is my first choice to benefit from it
Dan Ives is an equity research analyst at Wedbush Securities. He covers the biggest names in tech and always seems to have a handle on the latest megatrends.
Right now, artificial intelligence (AI) is making headlines in technology. But one area of AI that might be overlooked is information technology (IT) infrastructure. What does this mean?
Here’s how infrastructure fits into the AI narrative and why Super microcomputer(NASDAQ:SMCI) is my first choice to follow the trend.
The development of AI requires sophisticated protocols at the hardware and software level. One of the most important pieces of this puzzle are the chipsets called graphics processing units (GPU).
Nvidia And Advanced microdevices are currently two main GPU developers, but other major pillars of the technology, including Microsoft, AmazonAnd Metaplatforms looking to get into action.
Investing in these types of products falls under an accounting category called capital expenditures (capex). During a recent interview on CNBC, Ives suggested that AI investments would be a $1 trillion market over the next three years.
That said, why do I think Supermicro is a hidden gem?
Image source: Getty Images.
Selling GPUs and associated software is only part of the equation. These important AI-based products are hosted in huge data centers. Within these data centers are huge storage racks containing GPUs in very specific architectural designs. This is where Supermicro comes into play.
Supermicro is a computer architecture specialist that designs how GPUs fit into storage clusters. The company works closely with Nvidia and AMD, and I see some obvious catalysts on the horizon.
More specifically, sales of Nvidia’s new Blackwell series GPUs are expected to reach the multibillion-dollar mark by the end of the year, according to management and Wall Street analysts. I suspect Supermicro will be heavily involved in the details relating to how these new products will be optimally hosted in data centers, and sees Blackwell as an important tailwind for the company.
Additionally, I wouldn’t be surprised to see Supermicro expand its reach in the IT infrastructure landscape as other big tech players begin launching their own chips. To me, increased capital spending is an obvious catalyst that could propel Supermicro’s business in the years to come.
That said, there are some important things to consider before jumping into Supermicro stock.
Although Supermicro’s price-to-earnings (P/E) multiple has declined throughout 2024, the chart below illustrates a notable decline over the past two months.
SMCI PE Ratio Chart
Two major forces led to a massive sell-off in Supermicro shares. First, the company’s earnings report released in early August showed just how volatile Supermicro’s gross margin can be. Ideally, growth investors want accelerating revenues, expanding margins and rising profits. Supermicro’s business is not that simple.
Infrastructure companies will have lower margin profiles than software companies or companies with pricing power. Frankly, I think investors have simply been given a reality check and need to accept that Supermicro’s profit margin can fluctuate from time to time.
The other factor at play here is that Supermicro was the subject of a report published by short seller Hindenburg Research in late August. Although short reports are often seen as negative, there is an important caveat to note: short sellers have a vested interest in seeing a stock price fall.
Although Supermicro delayed filing its annual report after Hindenburg’s report claimed the company manipulated its accounting, this short report reveals little other than speculation and a cratering stock.
I admit that investing in Supermicro currently carries some risks. But thinking longer term, I see increased investment in IT capex and infrastructure as a long-term tailwind that could fuel Supermicro’s business in the long run.
For these reasons, I view Supermicro as the company best positioned to benefit from AI IT infrastructure opportunities.
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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, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco holds positions in Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool holds positions 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.
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