Availability of DLC racks, at least for now provides a “moat” of sorts for SMCI. In general, my perception is that they have two rather shallow moats, time to market being one and customization being the other.
It’s not like these advantages are equivalent to proprietary knowledge, they aren’t that hard to replicate. Other vendors are faced with the dilemma of investing the time and money required in order replicate the ability to customize their products.
It’s neither cheap nor easy. It’s my understanding that SMCI makes a lot the components that other companies purchase, i. e., motherboards, power supplies, maybe even chassis. It would be quite an investment to acquire the factory space to build these parts in house, let alone finding the skilled labor required to actually build them at scale.
Looking at Nvidia’s Blackwell it appears these modifications have been warranted. At roughly 60kW per rack — 14.3kW per node — a stack of four DGX B200 systems is already pushing the limits of standard air cooled racks in Digital Realty’s facilities.
And that’s not even Nvidia’s most powerful system. Its latest GB200 NVL72 rack-scale systems, which we in detail last week, are rated for 120kW and - to no one’s surprise - absolutely demand liquid cooling.
…
From the graph, you can also see that the liquid cooled NVL system is actually the most efficient of the bunch, no doubt owing to the fact it isn’t dumping 15-20 percent of its power into fans.
…
As such, we suspect that liquid-to-liquid CDUs are going to be the preferred means of cooling racks this dense.
…
Nvidia CEO admits next gen DGX systems necessitate liquid cooling - and the new systems are coming soon
…
Instead, during a monologue about the power of modern GPUs and AI processors, he said “one of our computers” and "the next one, soon coming, is liquid cooled.
…
2,000 watt processors might even be within the realm of possibility, as Intel researchers are attempting to design a liquid cooler that can handle that much heat. For years, processors have been getting hotter and more power-hungry, and to keep that trend going the industry will need to invest in cutting-edge cooling solutions.
…
Nvidia’s CEO Jensen is saying the next generation of systems is going to require liquid cooling. Super Micro has the best system on the market for data center level liquid cooling.
I’d still like to challenge what publicly traded companies are even competing with Super Micro in this space?
We are hearing that Intel is “attempting” to build a “liquid cooler”. They don’t even have a liquid cooled product to market yet?
Are we seriously thinking Dell and HP are going to out innovate Super Micro?
As Jensen mentioned in his GCT speech, the rate of acceleration with AI is much faster than Moore’s law. I’ll take the company with the leading product on the market now, over some supposed competition coming down the road.
Dell and HP have shipped Liquid Cooled for some time. Perhaps SMCI has something better, but I’m hard pressed to buy into that being a durable moat.
I believe that the SMCI moat is the tight relationship between the two CEOs and that SMCI is a trusted tight partner that NVDA can roll out and prove technology with. And they should keep on the cutting edge with that role and continue to prosper as a company. But that’s quite different than doing well as a stock.
And the same risk is true with NVDA (by far my largest holding). The valuation assumes a model that is far better than “doing well”…
Inventec and Quanta both offer liquid cooling. I’m sure there are others. I don’t really know if any of these Supermicro competitors can offer the same scale. Inventec is not a small company $16B in 2023 revenues, over 32,000 employees (I didn’t look up Quanta).
But, they build a lot of stuff other computers. I didn’t dig into there financial reports, I don’t know how much revenue is provided by which product segments.
While this company is obviously a Supermicro competitor, there aren’t a lot of competitors with DLC racks in their product catalog. And then there’s time to market, scale, customizability, after sales support, related management software and a slew of accessories that SMCI offers.
Nevertheless, when Supermicro says they are sacrificing margins for share, I’d venture these are the competitors they consider a threat rather than better known Dell, HPE, IBM, etc.
So to be clear, both Inventec and Quanta are well established ODMs. They would not sell to end customers. Their products are private labeled and sold by companies such as Dell, HPE, and 10’s of others. Any support they would provide would be highly technical to teams at places like Dell normally during the qualification process of a new product. They have tons of engineers who are highly focused on their product categories and big factories behind them.
I sometimes tell the story of visiting one such ODM in Taipei for the first time and not expecting it to be a high rise building. We got off the elevator on the wrong floor and it was refrigerators. Next floor was dryers. Then rice cookers. We finally found the PC floors as a process of elimination. But no mistake, the guys on that floor were no slouches when it came to Intel based computing.