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News not well received thou…..is it a case of short sighted investors and not having a handle on what the $2B is for
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Foxconn’s order visibility for AI servers extends into 2027, media report, citing spokesman James Wu, who added orders continue to outpace capacity. A few weeks ago, Foxconn said it rented factory space in Houston, Texas to help meet demand.
Foxconn also made the comment that they are working on two super-massive projects, both exceeding $100B each and one of them was originally thought to be $100B is now anticipated to be in the range $300-$500B. I would expect that to be Stargate. It is also worth noting that businesses like to publicise big numbers. Working on a $300B project doesn't mean they are the sole supplier, more the lead supplier. Still it's a headline Nr which is indicative of the scale and speed of this secular transition to accelerated computing and it bodes well for all participants.
- SMCI convertible debt has been priced and I would speculate they are paying very low interest rates, if any. We knew the debt raise was coming, it is a clear sign of very strong growth and grow they will.
The medium term stock price is largely irrelevant. it is dominated by short-sellers. If the company surprises with upside guidance, that short position will get obliterated.
If we look at the companies pre raise working capital and inventory /receivables conversion rates I believe they can now support up to $9B/Q in revenue.
Key considerations near term being margin expansion. Revenue is most definitely on the rise (XAi and Coreweave known mega customers). Every 1% margin expansion going forward is worth $80M per quarter(with a 15-20% QoQ growth rate) with scope for plus 3-400bps over the next 12 months. I believe, given their clear competitive advantages in custom DLC/DCBBS coupled with the now mature Blackwell architecture, their capacity which up until now has not been anywhere near fully utilised, margins will expand.
There is no way around capital raising when growth is so steep. Unless of course you have a gigantic margin(like Nvidia). SM could have just issued vanilla debt however the interest to service it would have been high. That too would be dilutive(to earnings) I don't think they are finished raising money because there is considerable growth to come.
Their quarter(Q4 fiscal 25) end is Wednesday next week. It's impossible to say how the current Q4 played out suffice to say it should be at the higher end of their guide for quite clear reasons. I'm more interested in their Q1 fiscal 26 guide which can only be a record imo. Large numbers of racks are being installed in Colossus-2 (imminently), Coreweave is cranking their DC builds. I believe they are working with Apple, Oracle and Meta and the more throughput they can achieve, their utilisation rates go up and therefore their cost per unit goes down which translates to margin expansion. The company may reaffirm their fiscal 26 guide of $40B, something I think they will achieve. This would represent a 65% revenue growth rate over 2025.
It is worth pointing out that Dell has net margins almost 50% lower than SM, a lot of debt and is laying off staff. SM sell more Ai racks than Dell. And Dell, despite their claims, do not make any Ai racks, they buy them from Quanta and Foxconn and adhere a Dell logo-and this is why their margins are so low.
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Fujitsu is using TSMC(2nm) to manufacture a new AI CPU called MONAKA.
Super Micro Computer, Inc. (SMCI) is collaborating with Fujitsu to develop a green AI computing platform that incorporates Fujitsu’s Arm-based “FUJITSU-MONAKA” processor, targeted for release in 2027. This partnership focuses on creating energy-efficient, high-performance solutions for AI, high-performance computing (HPC), cloud, and edge computing environments.
Fujitsu’s claims of doubling performance and efficiency are bold but speculative, as competitors like AMD’s EPYC Venice (256 cores, 2nm) and Intel’s Xeon (with big-little core strategies) will also advance by 2027.
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SMCI Convertible notes 'close'
SM announced the completion of a $2.3 billion total principal amount of convertible senior notes due in 2030 , inclusive of the full exercise of the option granted to the initial purchasers to acquire up to $300.0 million in additional notes.
“We’re grateful to our investors who align with our vision,” said Charles Liang, Chief Executive Officer and Founder. “With increasing demand for next-generation GPU platforms, this was a timely capital raise that reinforces our balance sheet with minimal dilution, enabling ongoing support for our customers’ ambitious growth strategies around AI-enabled DCBBS solutions as they scale up their operations.” Minimal dilution will be achieved by entering into a capped call contract which is a contract with the right to buy stock at a set priced (capped), in other words if the stock goes up they profit from the delta between the strike price and then market price subject to the cap(limit).
The convertible note issuance was structured with a highly favourable 0.00% interest rate (we figured zero interest), a five-year maturity term, and an initial conversion price of $55.20 per share—reflecting a conversion premium of approximately 35.0% over the Company’s closing share price of $40.89 on 23 June 2025. Combined with a simultaneous share repurchase(200M) and capped call arrangement, this structure aims to minimise the effect on existing shareholders.
As part of the transaction, Supermicro entered into a capped call hedge to increase the effective conversion premium to 100% of Supermicro’s share price as of 23 June 2025. Consequently, the impact of any dilution or cash liability from future conversions of the notes is expected to be mitigated, as the effective conversion price rises to $81.78 per share—double the Company’s closing price of $40.89 on that date.
Additionally, Supermicro repurchased approximately $200 million worth of its ordinary shares from note purchasers, in an effort to offset the potential effects of related hedging activities linked to the offering.
Supermicro retains the flexibility to settle any conversions in cash, shares, or a mix of both, allowing the Company to manage any prospective dilution or cash commitments stemming from future note conversions.
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Not the long term focus(just nice to see) however SM touch $50.30 today which is +90% on our existing position.
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xAI raised $10 billion in , as announced by Morgan Stanley on June 30, 2025, comprising $5 billion in debt (secured notes and term loans) and $5 billion in strategic equity investment. This is the confirmed amount for the quarter, primarily to fund AI infrastructure, including the 110,000 Nvidia GB200 GPUs planned for the Colossus supercomputer in Memphis.....SMCI will be installing these racks 'soon'
Xai isn't finished raising money-I believe they are looking for an additional $20 billion. 800k B200/300 aint cheap
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Reported in the Daily Memphian last night
The left have tried to shut the project down, and failed.
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We have now entered a possible reporting window, where SM could pre announce earnings. So it is worth a recap of where we are and what we want to hear/see in the coming days/weeks.
Could SM announce Q4(set) early. Possibly. They guided 5.6-6.4b and a conservative EPS.
The focus more me is Gross Margin. 9.6% in Q3 was poor, but there are reasons why it should almost certainly increase and materially. And why the headline number was swallowed by ignorant observers who don't have any understanding what was driving the number and therefore why it should recover (other things being equal).
H100/H200 inventory write downs totalled 220bps being included in the 9.6%. It is worst case a one time provision, meaning the base line is closer to 11.5% in Q4. Best case scenario they sold the stock at prices above the net book value. I know they are selling meaningful quantities of Hopper systems. We don't know exactly how much or pricing.
There are two other factors which I think will impact margin in a positive way, actually 3.
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Throughput. The more they produce and ship the lower the cost. This is due to what is a considerable fixed overhead being applied over a larger revenue base. This could easily be 150-200bps. I recall management commenting that Malaysia was only at 1% capacity(Q3). It doesn't take a genius to know that Malaysia, being a large facility is staffed by 100s if not 1000's of staff. 1% means they are doing nothing, costing money.
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Other things being equal, Blackwell is a more profitable architecture than Hopper. It's newer and more scarce. Simple demand/supply in play here. We know Blackwell systems are now the dominant revenue driver. Added, this enables a better product mix to higher margin sales, with less reliance on other systems. ASP is also much higher.
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R&D costs. SM have spent significant sums on R&D, preparing for Blackwell. I would estimate 40-50M extra costs in Q2/Q3 developing new products. However the revenue was deferred due to constraints. We all read about the lumpy Blackwell start. So, this cost is absorbed directly to COGS(margin). It's also worth mentioning the costs re the late filing/investigations which were about $20M.
Assuming 1%(100bps) based on Q3 numbers equates to around 45M. It feasible that net SM could improve margins 300-350bps, i.e report 13.1%+. 14% would be brilliant but im not counting on it.
The market expects the same 9.6% or worse! I think they are very much in for a surprise. Just my opinion and I may be wrong.
Currently, the scorecard on Super Micro is a 200% realised gain and a 100% unrealised gain (USD, we paid $26.5). It has been a fantastic investment and we have navigated the issues well, much to the clear annoyance of some :).
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