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Microsoft Unveils Nvidia’s Blackwell GPUs: Impact on Broadcom and Super Micro Computer
In a recent post on X, formerly Twitter, Microsoft showcased its latest server rack equipped with Nvidia’s new Blackwell graphic processing units (GPUs). Microsoft is believed to be the first recipient of shipments for these highly sought-after Blackwell chips. The post highlighted that Azure is the first cloud provider to utilize Nvidia’s Blackwell system.
Additionally, Microsoft mentioned it is using InfiniBand networking alongside a unique closed-loop liquid cooling system. This development may not bode well for two artificial intelligence (AI) stocks: Broadcom (NASDAQ: AVGO) and Super Micro Computer (NASDAQ: SMCI). Let’s explore the effects on these companies.
Broadcom Faces Challenges Amid AI Growth
Broadcom is positioned to gain from AI in two significant ways: its development of custom AI chips and its provision of network components and switches.
The company champions Ethernet technology, promoting it as the best solution for managing AI workloads and data transfer between GPUs. Broadcom projects that as GPU clusters expand, Ethernet will address the distributed computing challenges they pose. The firm expects all hyperscalers to adopt Ethernet technology by the first half of next year.
However, the Azure server that Microsoft showcased utilized InfiniBand technology, a product of its acquisition of Mellanox, rather than Ethernet. This choice could undermine Broadcom’s stance, as it has long criticized InfiniBand.
Despite this setback, there’s potential for both technologies in the future. Broadcom remains strategically well-placed to benefit from the ongoing infrastructure expansion related to AI. Its growing customer base for custom AI chips marks a significant opportunity. Having expanded from one client, Alphabet, to at least four, the future remains promising for Broadcom.
Image source: Getty Images.
Super Micro Computer has faced various challenges, including allegations from short sellers and a potential Department of Justice probe regarding accounting practices. Despite these issues, the company continues to sell numerous servers and racks.
One of its key advantages is the use of direct liquid cooling (DLC). However, Microsoft’s new Blackwell server rack features its own closed-loop liquid cooling system, developed in-house due to the design of its data centers, which aren’t suited for large chillers. Microsoft aims to maintain water efficiency with this new system, indicating that Supermicro’s DLC may not be essential.
This trend is reflected in Super Micro’s recent financial performance, as its gross margins dropped to 11.2% last quarter from 17% a year prior and 15.5% in the previous quarter.
Throughout these challenges, Supermicro trades at a forward price-to-earnings ratio of about 14, despite its low-margin status and ongoing accounting scrutiny. With the AI infrastructure buildout still in its infancy, there remains potential for upside. However, caution is warranted given the existing risks.
Investment Considerations for Broadcom
Before investing in Broadcom, it’s wise to consider the following:
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. It also recommends Broadcom and suggests long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
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