Super Micro Computer Rides on DLC Momentum: What Lies on the Horizon?

Globe and Mail

2 days ago

Super Micro Computer 's SMCI direct liquid cooling (DLC) technology is in high demand among hyperscalers and AI data centers as the liquid cooling technology reduces heat more effectively than its air cooling counterparts. DLC also commands efficient power usage, which enables it to handle higher computational densities and lowering total cost of ownership.
SMCI's DLC is driving its server and storage system segment, which grew 20.5% year over year in the third quarter of fiscal 2025. Notably, Super Micro Computer's direct liquid cooling products for data-center applications crossed the production volume of 2000 DLC racks per month.
Now the company has introduced DLC-2, which not only reduces electricity consumption by 40% but also lowers the cost of water and space while decreasing noise. SMCI's success with liquid cooling technology is evident in the strong traction in 4U NVIDIA B200 HGX systems and GB200 NVL72 racks as reported in the third quarter of fiscal 2025.
SMCI's newest technology, its direct liquid cooling data center building blocks (DCBBS), enables data centers to develop modular, rack-scale and plug-and-play architecture. The DCBBS technology utilizes DLC-2 to optimize thermal performance.
The rising adoption of SMCI's DLC offerings has prompted it to announce a revenue guidance of $21.8-$22.6 billion for fiscal 2025. The Zacks Consensus Estimate for SMCI's fiscal 2025 revenues is pegged at $22.12 billion, indicating growth of 48% year over year.
How Competitors Fare Against SMCI
Vertiv VRT has a strong thermal management portfolio covering coolant distribution units, chillers, rear-door heat exchangers, and immersion cooling systems to optimize performance, power utilization, control, and heat re-use. VRT is expanding its storage and server cooling expertise organically and inorganically. Vertiv is working closely with NVIDIA to offer cooling systems to AI factories and has previously deepened its portfolio with the Cooltera acquisition.
Dell Technologies ' DELL liquid cooling architectures consist of its Apex and PowerEdge platforms designed for AI server solutions. DELL's cooling solutions are modular, customizable and allow the integration of both air and liquid cooling features with 24-hour rack deployment turnaround and end-to-end deployment services. These key differentiators make Dell Technologies' server easy to deploy, hence encouraging smoother adoption.
SMCI's Price Performance, Valuation and Estimates
Shares of SMCI have surged 61.6% year to date against the Zacks Computer- Storage Devices industry's decline of 9.2%
SMCI YTD Performance Chart
From a valuation standpoint, SMCI trades at a forward price-to-sales ratio of 0.98X, lower than the industry's average of 1.45X.
SMCI Forward 12 Months (P/S) Valuation Chart
The Zacks Consensus Estimate for SMCI's fiscal 2025 earnings implies a year-over-year decline of 6.33% while the 2026 earnings estimate implies growth of 26.33%. The estimates for fiscal 2025 and 2026 have been revised downward in the past 90 days and seven days, respectively.
SMCI currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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