Super Micro Computer (SMCI) is pulling up the drawbridge.
In the Middle Ages, the moat was one of the first lines of defense for a castle and other fortifications.
The practice, which has been traced back to ancient Egypt, involves digging a deep ditch around the structure and filling it with water to keep out the folks looking to harm you.
Moats aren't a viable military option anymore, but the concept still exists in the business world.
Warren Buffett, chief executive of Berkshire Hathaway (BRK.A) , the Oracle of Ohama himself, popularized the term "economic moat," to describe a business's ability to maintain competitive advantages over its rivals and protect its long-term profits and market share.
Supermicro, which makes high-end servers used in artificial intelligence, has its own kind of moat, according to analysts at Barclays, who believe the San Jose, Calif.-based company is well-situated in the rapidly expanding AI realm.
Nvidia (NVDA) is currently the king of the AI castle as the tech giant boasts an estimated 80% share of the market for AI-powering processors.
During his keynote address Monday at the company's GTC 2024 event, Nvidia CEO Jensen Huang announced the new Blackwell GPU architecture, which performs AI tasks at more than twice the speed of Nvidia's current Hopper chips.
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"There's probably never been a technology company that has made a greater technology contribution to one of the most important industries in the world, and at such large scale," Huang told CNBC's Jim Cramer when asked to explain Nvidia's meteoric success.
Barclay analysts George Wang and Tim Long believe Supermicro can benefit greatly from Nvidia's success.
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The analysts, who kept an overweight rating and a $961 price target on the shares, said the event also highlighted the ability of Nvidia’s Blackwell B100 to cut Total Cost Ownership (TCO) and energy use by 25 times when compared with the H100.
Supermicro announced a range of matching AI server products immediately, noting that a wide range of GPU-optimized Supermicro systems will be ready for the B100, B200, and GB200 designs, with some of the company's systems being liquid-cooled.
"We continue to highlight time to market as the strongest moat of SMCI," Wang and Long wrote. "We think the AI strength is still in an early innings and it is too early to take a cautious view at this point."
As Nvidia increases the new product launch cadence to once a year, versus every other year, the analysts said, this should structurally boost Supermicro's advantage.
Supermicro will have a list of matching server products ready immediately and offer design assistance after Nvidia, Advanced Micro Devices (AMD,) and Intel (INTC) announce new chips, compared with a much longer development cycle for competitors.
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"SMCI should also capture full (Average Selling Prices) from the pricing increases with the new-gen silicon and server products, as the supply chain talks about a 40% ASP increase for B100 versus. H100 chip based on early feedback," the analysts said.
Supermicro shares have soared with the AI explosion, rising some 300% since the start of the year.
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In January, the company delivered surprising revenue, earnings, and guidance on Jan. 30, earning an adjusted $5.59 a share on sales of $3.66 billion in the quarter ended Dec. 31.
This was the company's first quarter ever with over $3 billion in revenue and the quarter's sales total surpassed Super Micro’s annual revenue for 2021
However, the company's stock has taken a beating recently after Supermicro made its S&P 500 debut on Monday, losing about 6% of its value,
Shares fell again on Tuesday, dropping 9%, after the company announced the pricing of its public stock offering, It was the worst-performing stock in the S&P 500.
Supermicro said it will sell 2 million shares of its common stock at $875 a piece and expects to make $1.75 billion in gross proceeds.
"Obviously, the firm had made a decision to allow for a piling in of public funds in anticipation of the stock's inclusion in the S&P 500 and had intended to announce the intent to raise a nice chunk of cash through a secondary offering of its stock after having taken all of your money," TheStreet Pro's Stephen Guilfoyle wrote on Tuesday.
Shares ended down 1.59% to $896.47 on Wednesday.
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