Microsoft’s New GPU Servers Shift the AI Landscape – What This Means for Key Players
In a recent post on X, formerly Twitter, Microsoft showcased its first server rack featuring Nvidia‘s latest Blackwell graphic processing units (GPUs). This shipment marks Microsoft as the first company to receive these sought-after Blackwell chips. Additionally, Microsoft announced that Azure is the first cloud provider to operate on the Nvidia Blackwell system.
Microsoft highlighted its use of InfiniBand networking along with a unique closed-loop liquid cooling system in this new setup. This change poses challenges for two AI-related stocks: Broadcom (NASDAQ: AVGO) and Super Micro Computer (NASDAQ: SMCI). Let’s examine the ramifications for these companies.
Broadcom stands to gain from the AI boom in two primary ways: through its custom AI chip offerings and its network components. The company promotes its Ethernet technology as the optimal solution for managing AI workloads and transferring data among GPUs. As GPU clusters expand, Broadcom argues that Ethernet will effectively address the challenges of distributed computing. They project that all major tech companies, known as hyperscalers, will adopt Ethernet technology by the middle of next year.
However, Microsoft’s newly unveiled Azure server does not utilize Ethernet but relies instead on Nvidia’s competing InfiniBand technology, acquired through Mellanox. While this doesn’t entirely rule out Microsoft’s future use of Ethernet technology or the potential for hyperscalers to implement it, it represents a significant setback for Broadcom, which has been critical of InfiniBand.
Despite this, room remains for both switching technologies, placing Broadcom in a favorable position amidst the expanding AI infrastructure. Its growing customer base for custom AI chips will likely be its larger opportunity. Notably, Broadcom has gone from sourcing one customer, Alphabet, to at least four, indicating significant growth potential.
Overall, even though Microsoft’s Blackwell server does not incorporate Ethernet, the outlook for Broadcom remains positive.
Image source: Getty Images.
Super Micro Computer: Struggles Amidst AI Growth
Super Micro Computer faces several challenges, including accusations from short sellers, an investigation by the Department of Justice into accounting practices, and delays in its annual report. Despite these issues, the company excels in selling a wide range of servers and racks. One key feature they promote is direct liquid cooling (DLC).
Contrarily, Microsoft’s Blackwell server rack employs its own closed-loop liquid cooling system, crafted due to the design limitations of its data centers when it comes to large liquid chillers. Microsoft’s focus on water efficiency led to the creation of this closed-loop system, which minimizes water usage.
This development underscores that Super Micro does not possess a unique or essential cooling technology. Their recent performance reflects this, with gross margins shrinking to 11.2% from 17% a year ago and 15.5% the previous quarter.
Ultimately, Super Micro is grappling with low margins and a history of accounting scrutiny, yet it is still positioned to tap into the ongoing AI infrastructure growth, which is still in its infancy. The company’s current valuation stands at a forward price-to-earnings ratio of roughly 14 times current fiscal-year estimates (ending June 2025).
While investing in Super Micro comes with risks, there is potential for recovery if existing accounting concerns are resolved or turn out to be minor. However, returning to past high stock values seems unlikely.
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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. The Motley Fool recommends Broadcom and suggests 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
