Super Micro stock was clearly undervalued even on traditional P/E metrics as recently as 2022. And I believe the reason for the depressed stock price was Bloomberg’s allegations that China was using Super Micro’s motherboards as Trojan horses for spy chips:
The low valuation had less to do with the spying allegations and more to do with a history of accounting frauds. Obviously if you have a proven history of fudging up revenue numbers, investors are less likely to invest in you.
My amateur understanding is that it’s very hard to successfully sue journalists for libel in the US because you’d have to prove malicious intent. A journalist writing a story based on their sources may have been misled by someone with an agenda, but didn’t write the false story with active malice.
As someone who has done journalism, that's basically correct. All indications are that simultaneously the story wasn't true and the reporter and all their editors firmly believed it was true. My personal assumption is that they believed the story was solidly sourced but they were misled.
ADDED: Standards are somewhat different between private people and public people/corporations.
I'm glad the story ran, even if it wasn't true - because it opened people's minds to the idea that this was happening. And it is a very real possibility. O.MG is a hobbyist project, but there's no question that the NSAs dirty tricks book, ANT/TAO[1] has something similar, but far more capable.
We should all be paying attention to hardware suppliers and making sure that objects are "as-ordered", but today even a standard chip packaging can hide a ton of malicious logic.
Lots of weird things have been said about many companies. I think the other part of this story is thus - Don't believe everything you read on the internet, or even in print media.
> I'm glad the story ran, even if it wasn't true - because it opened people's minds to the idea that this was happening.
By 2018, all the eyes that could be opened already were.
It's true that there were people that aren't convinced by the well-evidenced reporting from the Snowden, etc revelations. Of that group, I can't see Bloomberg's low-evidence story as what finally opened their eyes.
> We should all be paying attention to hardware suppliers and making sure that objects are "as-ordered", but today even a standard chip packaging can hide a ton of malicious logic.
For smartphones, laptops and PCs that is relatively easy to defend against if you think you might be a target for three-letter agencies - just walk into a computer store and buy what they have on the shelf with cash. Even the NSA doesn't have the resources to intercept and modify all the shipments to Apple, Best Buy, Costco and whatnot - and I'd guess at least Apple has pretty strict security in their supply chain given that Apple stuff has insane value even just for parts if someone were to intercept a delivery.
Network architecture however, that is more complex. Cables, Ubiquiti, HP and Dell stuff, you can buy that off the shelf, so same advantage. But servers? Good luck finding ones on the shelf anywhere.
> Even the NSA doesn't have the resources to intercept and modify all the shipments
Your words are close to truth, but not equal to it. I don't know exact resources of NSA, but I know businesses in exUSSR, who done exactly what you say with smartphones and audio/video.
This was grey scheme of import, with which imported more then 90% of tech in these countries, and this was reason, why Sony was condemned in Russia in 90s "for extremely low quality" (because local Sony representatives participated in scheme and central office closed eyes on this).
So, in Eastern Europe that time existed zero import taxes for electronics. They imported electronics, disassembled it to parts, and exported to exUSSR as garbage; then these parts reassembled in garages and sold in ordinary shops as new devices.
As I said, more then 90% reassembled, only less than 10% imported as ordinary contraband, or officially imported.
For scale, as I remember, US have about 300mln population, Russia have 140mln, approx half (sure, Russians have much less purchasing power, but it is hard to estimate now, if may help, Russia GDP is very close to Italy with about 59mln population).
> Apple has pretty strict security in their supply chain
Must admit, Apple have better security than other manufacturers, but grey iPhones still sold in Russia, so real hackers found ways.
The source in this case admitted that he presented a hypothetical scenario with a random SMD component as an example. The ignorant Bloomberg employee embroidered that into a lie.
Never attribute to ignorance what can be explained by malice and corruption (post-GFC/Madoff, finance and its cottage industries no longer get the benefit of the doubt).
I think most consumer market "reporting" is poorly-disguised market-manipulation. Best advice for your portfolio is to tune all of those assholes completely out.
Something fun: pay attention to how many financial news headlines are formatted, "X as Y" or "Statement Presented as Fact: Says Opinion-Haver". The first implies that there's some causational link between X and Y, when none might exist; the writer can claim that they were just stating that two events were happening in tandem. The second biases a reader before they receive the crucial information that the preceding statement was not, in fact, fact.
(Also, lately, look out for listicles of stocks "to buy" (not financial advice, of course) and "Forget X".)
That was such an incredibly ridiculous story. I spoke with more than a few supposed infosec "professionals" who believed it entirely too. Never mind that there were zero reports from other journals (you know, like anything even slightly technical), that none of the cited sources would reiterate what they had supposedly said, or that the claimed mode of operation wasn't even possible. Their follow-up, despite having been disproven numerous times over, was even more ridiculous.
If I'm assuming everyone involved had good intentions, the best thing I can guess is someone was speaking to the writer about the potential of the BMC being used for spying and got some details mixed up.
Consider: the BMC has access to the system via PCI-e, as well as kvm and comport. In some systems, the BMC is in the path of the main NIC. There have been some major software flaws in BMC software, including revisions that SuperMicro shipped, where passwords could be bypassed in the network interface.
> If I'm assuming everyone involved had good intentions, the best thing I can guess is someone was speaking to the writer about the potential of the BMC being used for spying and got some details mixed up.
I can't judge their intentions. But Bloomberg doubling down on the story in 2021 strongly discounts the possibility that the original reporting was based on any kind of bad info.
> “This wasn’t a case of a guy stealing a board and soldering a chip on in his hotel room; it was architected onto the final device,” he said, declining to reveal which company he worked for at the time.
Still kind of reads like someone told us there was a bad chip on the motherboard. And there was, and it was the BMC/firmware for the BMC.
Did SuperMicro (or their suppliers) just write shitty firmware with zero security for their BMCs because that was the industry standard, or was it a Chinese Ministry of State Security plant who did it as part of an evil plot?
Did big companies pull out of SuperMicro because of poor BMC security? Sometimes, a bit, often as just one more checkbox on the way to OCP style defluffed machines; in an early revision of OCP, rather than a BMC, the NIC's wake on lan signal was rerouted to reset, to become reboot on lan. But then OpenBMC happened, cause reboot on lan isn't enough for everyone.
>But Bloomberg doubling down on the story in 2021 strongly discounts the possibility that the original reporting was based on any kind of bad info.
How so? If there was an ulterior motive (I don't know if there was, but it's been suggested) then they'd also double down. They also didn't even attempt to respond to the issues. If they had good information based in reality, a lot of the claims would've been trivial to refute.
Meta is wasting all kind of money ($40B across 2 years) on Nvidia, SMCI, and their own gear. SMCI and Nvidia stocks are now overvalued because there are no fundamentals to sustain this business. OpenAI/Microsoft may be an exception, but Meta is wasting money it doesn't have on profits that aren't there. These data centers and servers are being built on orders of Zuck without a concrete, specific product or purpose for their use. This is akin to a newbie business owner buying lots of inventory without orders.
Meta obviously has the money; $135B revenue, $88B in expenses, $18B in debt.
Even assuming the current push toward general AI is a bubble, which is not unreasonable, the company can afford to throw away billions of dollars. It doesn't matter at all; they own the money printer and can make as many bets in as many markets as they want.
The same GPUs that are presently being used to create semi-open AI projects can just as easily be repurposed to power a public launch of their Codec avatars, which are lightyears ahead of what Apple has, or for better prediction engines in what are quite probably the best sales engines of all time: Their websites.
Their data centers will be useful for the future of selling products to gullible consumers: Short-form video, which is the first chance in years that they've had to meaningfully take market share from Google.
Even assuming it was all vanity, Zuckerberg has earned the right at this stage in his career to make vanity plays. He still has majority control over his company, which shareholders have insisted upon, and he has an almost untarnished record of making incredible long-term bets that seem irrational at the time (Instagram acquisition, Whatsapp acquisition, arguably the Oculus acquisition).
He's earned drastic amounts of money for speculators, who have done little to deserve any of it. It would be a strange thing to argue that the speculators suddenly have a better grasp of what he's doing than he does; there are millions of speculators, but only one person with a track record like Zuckerberg.
> almost untarnished record of making incredible long-term bets that seem irrational at the time (Instagram acquisition, Whatsapp acquisition, arguably the Oculus acquisition).
Meta has plenty of money to spend. It's also been reported that Meta is using AI to get around Apple's ATT [1], with some reports saying that user ad targeting is better than before ATT came out [2]. Meta is already executing and succeeding on a concrete plan using their AI.
you know the saying; the market can stay irrational longer than you can stay solvent and all that. turns out P/E ratios determine a theoretical floor for the price, but as we've seen with Tsla and crypto, this shits all vibes anyway. AI isn't slowing down,
or going to go anywhere, so these stocks, overvalued though you might see them, aren't going to go down anytime soon, in my opinion, so while what your say is true, NVDA and smci are safe to hold. the real question is what's going on with tsmc and mu, given their proximity to NVDA, and their lack of a pop.
It's interesting you mention Tesla, because their sales clearly show that the growth expectation was not realistic.
And in case of Nvidia it's even much worse.
In order for Nvidia to be worth a decent premium over the yield of some index fund like VOO (you're taking much more risk), it has to grow in the order of 42% per year for a decade in revenue.
There's no such amounts of money to be spent in hardware, it's lunacy.
Not even the other tech giants combined have even a small part of the money required for such growth.
And on top of that, this is a very dynamic sector where any competitor, technological breakthrough can make you the new IBM.
Prices like Nvidia were highly overvalued but understandable with a stretch of imagination of 25% growth for a decade when it was 300$. I could almost see it and would've still concluded it was an unlikely outcome and risk/reward ratio was not there.
But now we long past that mark and in the territory of insane expectations and high premiums paid with a very high risk.
> There's no such amounts of money to be spent in hardware, it's lunacy.
Oh, money there is. NVIDIA is selling shovels to hordes of people searching for gold... first it was cr*ptoc*in miners, now it's billion dollar companies in the search for AGI. But unlike shovels that anyone with access to iron, a fire and a hammer can make, there are only five companies on this planet that can design the chips in the first place: Google and Amazon (who don't sell to outsiders), Intel (who has other, more pressing issues than to design AI training accelerators), AMD (who has the chops on the hardware design side but seems to be completely unable to get the software side stable enough that people would be even willing to look at it) and NVIDIA.
And to make the issue worse, there are only three fab houses who can physically manufacture the chips: TSMC, Samsung and Intel... TSMC is all but booked out already, Samsung is nowhere near their level, and Intel both doesn't do fab jobs for outsiders and has completely botched their new nodes for years now.
There is just no way anyone can outsmart NVIDIA at that point, and demand is only going to increase in pretty nasty bidding wars.
Money there is for sure, the claim though is the slightly different 'there isn't that much'. I don't know who is right, but it is the imporant question if you are investing long term.
Why are you using the metric of annual revenues must equal market capitalization to determine whether a company is overvalued? And why use revenue instead of earnings?
Currently if NVDA can double their earnings next year they’d have a P/E ratio similar to MSFT. I think many investors believe they can reach this target hence the high valuation.
Whether NVDA will continue to maintain this level of profit for the coming decade is another issue.
None of what you said denies any of my conclusions: expecting Nvidia to grow at a 40%+ rate for a decade is ludicrous.
Any of your arguments has been done about leaders like Cisco, Intel or Tesla that balooned to valuations that did not meet reality regardless of those companies in fact doing well, the revenue and growth expectations were just asinine and void of basic math.
There's no such thing as infinite demand growth and infinitely deep pockets, let alone margins staying that good for so long (and again the aforementioned companies are examples of the phenomenon).
You will likely do much better investing in VOO today than buying Nvidia, let alone having a much better risk/reward ratio.
https://www.datacenterdynamics.com/en/news/years-later-bloom...
Bloomberg originally broke this story in 2018, then repeated the allegations in 2021. But AFAIK it was never proven.
The Nvidia + Meta connection finally broke the spell and allowed investors to look at SMCI with fresh eyes.