How SMCI is Leveraging DCBBS to Capture Growth From the AI Boom?

Super Micro Computer’s SMCI Data Center Building Block Solutions (DCBBS) technology combines SMCI’s rack-scale, plug-and-play server architecture with its latest direct liquid cooling technology to optimize processing units for artificial intelligence (AI) and high-performance computing (HPC) workloads.

The DCBBS is developed to cater to the rising demands in data center efficiency by supporting higher-wattage CPUs and GPUs while reducing reliance on traditional server systems that are bulky in nature. DCBBS’ modular setup shortens time-to-online for hyperscalers.

SMCI’s DCBBS solution is experiencing rapid growth in demand for its advanced AI compute and data center solutions, especially powered by NVIDIA’s Blackwell Ultra (GB300) and AMD MI350/355X platforms. On its first-quarter fiscal 2026 earnings call, SMCI reported that DCBBS is expected to carry more than 20% margins and become a major long-term profit contributor in its business.

DCBBS is likely to support the revenue growth of SMCI’s server and storage system segment, which simplifies deployment, accelerates time-to-market, and reduces total cost of ownership. The company is also rapidly expanding its order book, including more than $13 billion in Blackwell Ultra orders and expects $36 billion in revenues for fiscal 2026.

However, this large capital expenditure is affecting its bottom line. SMCI expects its second-quarter fiscal 2026 earnings to decline 300 basis points due to costly GB300 ramp, logistics, and engineering expenses. Expanding cash cycles and negative cash flow raise near-term operational challenges for SMCI. Rising competition is one of the other worries in this space.

How Competitors Fare Against SMCI

The AI data center market is likely to witness a CAGR of 31.6% from 2025 to 2023, reaching a market size of $934 billion in this timeframe, per a report by MarketsAndMarkets. Big players like Hewlett Packard Enterprise HPE and Dell Technologies DELL are competing with SMCI in this space.

Hewlett Packard Enterprise offers a range of servers, including HPE ProLiant, HPE Synergy, HPE BladeSystem and HPE Moonshot servers. Dell Technologies has built the Dell AI Factory in collaboration with NVIDIA. Dell also collaborated with Red Hat Enterprise Linux AI for Dell PowerEdge servers.

SMCI’s Price Performance, Valuation and Estimates

Shares of SMCI have gained 31.8% year to date compared with the Zacks Computer- Storage Devices industry’s growth of 89.8%.

From a valuation standpoint, SMCI trades at a forward price-to-sales ratio of 0.62X, down from the industry’s average of 2.07X.

The Zacks Consensus Estimates for SMCI’s fiscal 2026 and 2027 earnings imply a year-over-year growth of 4.37% and 44%, respectively. The estimates for fiscal 2025 and 2026 have been revised downward in the past seven days.

SMCI currently carries a Zacks Rank #5 (Strong Sell).

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This article originally published on Zacks Investment Research (zacks.com).

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