Microsoft recent move threaten’s SMCI stock’s rally

Chip heavyweight Super Micro Computer (SMCI) has quietly outpaced the market over the past week, but a shift in data center spending could put the brakes on its rally before it really takes off.

SMCI stock has climbed in three of the last four sessions. On Wednesday, it jumped 15.8% to close at $36.71 as part of a broader relief rally. That gain erased most of the stock’s losses from the past month.

Much of the recent rally depends on runaway demand for AI data centers, but that momentum is slowing. Last week, Microsoft, one of the so-called hyperscalers, said it’s pulling back on global data center expansion.

Thanks to its deep ties with OpenAI, Microsoft is often viewed as a bellwether for AI demand. So its move to cut back could send shockwaves through the industry, especially for companies like Super Micro.

Microsoft didn’t spell out the reasons behind the shift, but a note from TD Cowen pointed to “data center oversupply relative to its current demand forecast.”

Despite the AI cooldown, Super Micro expands Nvidia partnership

The AI spending boom has slowed, sparking concern among investors that the “AI bubble” might be popping.

Industry leaders disagree. They see it as a natural part of growth in a maturing market. “I don’t like to use the word bubble because it implies that it’s going to go away, but there will be cycles,” said Doug Lefever, CEO of semiconductor firm Advantest.

Super Micro isn’t letting the current slowdown throw it off course. The company is one of Nvidia’s top clients for high-performance GPUs to power its expanding AI systems.

The two recently deepened their collaboration, teaming up to co-develop new, optimized storage servers.

Nvidia executive Rob Davis said the technology lets customers “benefit from Nvidia’s innovations in both CPUs and DPUs to accelerate networking protocols.”

Outside of its Nvidia partnership, Super Micro’s core business is holding up. The company posted a 54% jump in year-over-year revenue last quarter, with adjusted earnings per share up about 5%.

For fiscal 2025, the company expects to generate between $23.5 billion and $25 billion in revenue.

Still, executives warned during the latest earnings call that Super Micro could face “temporary margin pressure” as it ramps up R&D and deals with intensifying competition in the AI server space.