What Elon Musk's Game-Changing Supercomputer Means for the AI Boom... Dear Reader, These days, many tech enthusiasts and market watchers recognize Elon Musk and Sam Altman as rivals. But it wasn’t always that way. The two founded OpenAI in 2015 with a shared vision of advancing artificial intelligence. But by 2018, it became clear that the two tech visionaries had different ideas about what that would look like (but that’s another story for another day). So, Elon Musk left OpenAI. And a few years later – in 2022 – ChatGPT-4 debuted and kickstarted the AI Boom. Not to be outdone, Musk founded his own AI startup in 2023: xAI. And since then, the world’s richest man has been working furiously to catch up in the AI race. One way he’s been doing this is through Colossus, the world’s largest supercomputer. Located in Memphis, Tennessee, it currently has 100,000 graphics processing units (GPUs) and was built within 122 days. For this kind of project, it would typically take months or years to build. If that weren’t enough, last Wednesday, December 4, we learned that Colossus is about to get a LOT bigger. The Greater Memphis Chamber announced that xAI will begin expanding its supercomputer to hold at least 1 million GPUs. The GPUs are used to train xAI’s chatbot, Grok which was the first product to come out of the startup. Two AI companies are key in this expansion: NVIDIA Corporation (NVDA) and Super Micro Computer, Inc. (SMCI). The former supplies Colossus with its GPUs, and the latter, along with Dell Technologies Inc. (DELL), assembled the supercomputer’s server racks. These are, essentially, a specialized cabinet used to organize multiple servers in a data center. The three tech giants will also establish operations in Memphis to support the buildout. Now, NVIDIA and Super Micro have been under Wall Street’s microscope lately as recent pressure continues to mount. So, in today’s Market 360, I want to talk about the ramifications of this announcement on the AI Boom. I’ll also briefly address the reasons behind NVIDIA’s and Super Micro’s pullbacks this week, and whether investors can feel confident in these names moving forward. NVIDIA Gets Accused of Being a Monopoly Let’s talk about the latest news regarding NVIDIA. You probably noticed that the stock fell 5% earlier this week and is down roughly 5.7% for the week overall. There is one reason why: China accused it of being a monopoly and is opening an investigation into the company. Well, my comment is this: Of course, it’s a monopoly – that’s why I own it! As I mentioned in last Saturday’s Market 360, I believe NVIDIA is the stock of the decade because of its monopolistic characteristics. In other words, it is so dominant that there are virtually no competitors. The reality is China is very frustrated with the Biden administration as it has restricted the type of chips that NVIDIA can sell to China. At one time, NVIDIA modified its chips to shrink the bus width, which is the rate of data transfer, and shipped those chips to China. But that wasn’t enough for the Biden administration, and NVIDIA had to modify the chips further. These technology curbs and uncertainty about the types of technology restrictions the incoming Trump administration could implement has China lashing out. But I don’t want you to worry. NVIDIA’s fundamentals have not changed. All that happened was that the trading algorithms of major institutions and hedge funds saw negative news and hit the stock. Super Micro Gets a Key Extension You may recall that Super Micro Computer found itself in hot water earlier this year when Hindenberg Research, an unscrupulous short seller, issued a report claiming that Super Micro committed accounting violations based on the story of a disgruntled former employee. After an independent review, no evidence of accounting fraud was found. Shares of Super Micro surged 30% in one day following the news. Then, on Friday, December 6, the NASDAQ granted Super Micro’s request for an extension to allow more time to submit its 10-K and 10-Q filings, along with any other required reports. Super Micro now has until February 25, 2025, to file all required reports to remain listed on the NASDAQ. This triggered another 7% pop in the stock. In recent comments, CEO Charles Liang said that he is confident the company will meet the deadline. That didn’t stop investors from taking profits, though, and the stock was down about 10% this week. The bottom line is that Super Micro continues to dominate liquid-cooled AI chips in data centers, which are becoming faster and faster all the time. So, the company’s solutions remain in hot demand. Super Micro Computer even revealed recently that it shipped a record 100,000 GPUs in the most recent quarter. What’s more, an article in Investor’s Business Daily recently pointed out that Super Micro Computer’s customers are sticking with the company. In other words, the company’s massive order backlog persists – and the company is on track to ramp up production at its new plant in Malaysia in the first half of 2025. It’s also important to remember that this has always been a very volatile stock. So, while the stock was down this week, it has gone up 65% over the last month. Your Next Stock-Picking Tool to Have in Your Arsenal From what I can see, the AI Boom isn’t slowing down any time soon. It is in full force and will stay that way for the foreseeable future. This latest news from xAI is proof of that. Planning to make what is already the world’s largest supercomputer 10 times more powerful just speaks to the magnitude of the arms race taking place between not only xAI and OpenAI, but dozens of other well-funded AI unicorn startups – not to mention Big Tech. And as long as this enormous arms race continues, that’s fantastic news for the likes of NVIDIA and Super Micro. So, folks, there’s nothing to worry about with NVIDIA and Super Micro. Now, I’ve been able to find companies with superior fundamentals like NVIDIA and Super Micro thanks to my proprietary Stock Grader tool. I’ve seen my fair share of stock-picking tools in my 40-plus years in the business. But when I saw the system that my friend and InvestorPlace colleague Luke Lango created, I was impressed. It’s called Auspex. Every month, it analyzes stocks that have strong fundamental, technical and sentimental factors. Based on the analysis, Luke will let you know which stocks are the best to buy and which ones to sell. It couldn’t be any easier. But I’m a numbers guy, so I wanted to see how it performed against the broader market. Thankfully, Luke and his team did thorough backtesting between September 2019 to September 2024. If rebalanced monthly, Auspex would have returned 1,054%. In comparison, the S&P 500 only had 109% in returns. That’s really impressive. This past Wednesday, Luke shared more about how his Auspex tool works in The Auspex Anomaly Event. This replay will only be available for the next few days, so you don’t want to miss it! Click here now to watch the replay of The Auspex Anomaly Event. Sincerely, | .png)
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