SMCI vs. META: Which AI Infrastructure Stock Has an Edge Now?

Core Insights - Super Micro Computer (SMCI) and Meta Platforms (META) are key players in the AI infrastructure supply chain, with SMCI focusing on high-performance servers and META acting as a hyperscale consumer of AI compute [1][2] Group 1: SMCI Overview - SMCI provides end-to-end AI rack-scale systems that integrate compute, networking, storage, and liquid cooling for AI data centers, utilizing advanced chips from NVIDIA and AMD [3] - The company has introduced Data Center Building Block Solutions (DCBBS) to facilitate rapid scaling for AI data centers, which is gaining traction [4] - SMCI is expanding its production facilities globally, diversifying into client, edge, and consumer AI markets, and aims for $36 billion in revenues by fiscal 2026, reflecting a 64% year-over-year growth [5][6] Group 2: SMCI Challenges - Rapid expansion has led to inventory accumulation, with first-quarter fiscal 2026 closing inventory at $5.7 billion, up from $4.7 billion, and a cash conversion cycle increase from 96 days to 123 days [7] - The company reported negative free cash flow of $950 million for the first quarter of fiscal 2026, with earnings growth estimates revised downward [7][8] Group 3: META Overview - META is heavily investing in AI infrastructure, including custom chips and large clusters to support its applications, with 79% of its total expenses in 2024 directed towards data centers and technical infrastructure [9][10] - The company is developing custom chips for AI workloads and consolidating smaller models into larger, more efficient ones, with significant capital expenditures projected between $70-$72 billion for 2025 [11][12] Group 4: META Growth Projections - META's AI scaling efforts include the development of a one-gigawatt Prometheus cluster and a five-gigawatt Hyperion cluster expected to launch in 2028, with revenue and earnings growth estimates for 2026 at 18% and 31%, respectively [12] - Recent earnings estimates for META have been revised upward, indicating positive market sentiment [12] Group 5: Stock Performance and Valuation - Over the past six months, shares of SMCI and META have decreased by 37% and 14.3%, respectively [13] - SMCI is trading at a forward Price to Sales ratio of 0.46X, while META is at 6.42X, both below their historical medians [15] Group 6: Conclusion - SMCI is experiencing rapid growth driven by AI infrastructure demand but faces challenges with working capital intensity and negative cash flow [16] - META's long-term investments in AI infrastructure and improved technology position it favorably against SMCI, with both companies currently holding a Zacks Rank 3 (Hold) [16]