Every quarter, investment firms managing over $100 million submit a 13F form to the Securities and Exchange Commission (SEC). I consider the 13F a valuable resource because it details the specific stocks that institutional investors are buying and selling, and it can be intriguing to spot trends among Wall Street's leading money managers. One investor I particularly enjoy tracking is Jeff Yass, co-founder of Susquehanna International Group (SIG). In the second quarter, SIG acquired approximately 5 million shares of the artificial intelligence (AI) stock Super Micro Computer (NASDAQ: SMCI), boosting its stake in the company (also known as Supermicro) by 148%. Below, I will explore Supermicro's role in the AI sector and discuss key factors that should be taken into account when considering an investment in the company. 1. Analyzing the financials of IT infrastructure Supermicro frequently arises in discussions about semiconductor giants like Nvidia and Advanced Micro Devices. Consequently, many investors view Supermicro as merely another chip stock, but that perception is somewhat misleading. Supermicro is an IT infrastructure company that specializes in creating storage architectures for the GPUs developed by Nvidia and AMD.

Thus, while demand in the semiconductor market impacts Supermicro's performance, the company does not fit the traditional definition of a semiconductor stock. Although Supermicro has certainly benefited from the AI boom, its financial profile reveals a more sobering reality. Specifically, Supermicro's gross profit margin is trending downward. Despite consistent revenue growth, the company’s unit economics are concerning. Management has indicated that these challenges will be temporary, but the fact remains that IT infrastructure is not a high-margin sector. This brings us to another critical consideration: competition and the danger of commoditization. 2. Navigating a competitive landscape While Supermicro has successfully built relationships with leading GPU manufacturers, these partnerships are not exclusive. The company faces competition from numerous firms providing IT architecture solutions, such as Dell Technologies, Hewlett Packard Enterprise, Lenovo, and Cisco, which are larger and more diverse, posing significant competition. In general, when multiple companies offer similar solutions within the same market, they are compelled to compete primarily on price. Therefore, even though Supermicro's management anticipates growing operating profits, I question the extent to which the company can sustain profitability as competition intensifies.