When scouting for leading artificial intelligence (AI) stocks, Nvidia often emerges as a top contender, thanks to its commanding presence in the AI chip sector, propelling significant growth in both revenues and profits.
The optimism from Wall Street and investors regarding Nvidia’s future, especially in 2024 and beyond, as the AI chip market expands, is palpable. This sentiment is reflected in Nvidia’s impressive 20% stock increase in 2024. Yet, this commendable performance is overshadowed by Super Micro Computer (NASDAQ: SMCI), which has witnessed a staggering near 50% growth in just this month.
Delving into the reasons behind Supermicro’s meteoric rise—its more familiar moniker—and why it’s an attractive investment opportunity for immediate purchase reveals some compelling insights.
Supermicro’s Remarkable Financial Forecasts
Supermicro turned heads with its January 18 business update, revealing an upward revision in its fiscal 2024 Q2 guidance (ending December 31, 2023). Known for its high-demand modular server solutions crucial for AI chip deployment, the company now expects Q2 revenues to hit $3.62 billion, a nearly 30% increase from its prior $2.8 billion forecast.
Furthermore, Supermicro anticipates adjusted earnings per share to range between $5.40 and $5.55, a notable rise from the previous $4.40 to $4.88 estimate. This guidance hints at a potential doubling of Supermicro’s revenue year-over-year, with a 68% surge in non-GAAP earnings compared to last year.
The substantial upward revision in guidance and the impressive year-over-year growth prospects led to a significant spike in Supermicro’s stock price. However, despite the surge, Supermicro’s valuation remains appealing.
Currently, Supermicro boasts a price-to-sales ratio just above 3, a bargain compared to Nvidia’s 33. Its trailing earnings multiple of 39 is also more favorable than Nvidia’s 65. Trading at merely 7 times forward earnings, Supermicro’s projections for bottom-line growth are nothing short of impressive.
Consensus estimates suggest a 51% increase in Supermicro’s earnings to $17.88 per share in fiscal 2024, up from $11.81 per share in fiscal 2023. The company’s growth trajectory looks promising for the next few years as well.
Assuming Supermicro achieves $27.50 per share in earnings by fiscal 2026 and trades at the Nasdaq-100 index’s forward earnings multiple of 29, its stock could potentially escalate to $800, marking an 85% gain from its current level.
Understanding Supermicro’s Market Influence
Supermicro’s server solutions are in high demand, driven by the accelerating adoption of AI. The company’s servers are designed to optimize the parallel computing capabilities of GPUs, catering to the training of AI models with billions, if not trillions, of parameters using growing massive datasets.
Offering versatile server solutions compatible with various AI accelerators, including Nvidia’s H100 chip, Intel, and AMD offerings, Supermicro has become a go-to for data center operators seeking to minimize cooling and electricity costs.
The demand for Supermicro’s server racks is so robust that the company recently expanded its manufacturing capacity to 5,000 racks monthly, up from 4,000. This 25% increase in capacity is a strategic move to meet the strong market and customer demand for its comprehensive AI and IT solutions.
With the AI server market projected to quintuple from 2023 to 2027, reaching $150 billion in annual revenue, Supermicro is at the threshold of a significant growth opportunity. The company’s investment in expanding capacity, including a new facility in Malaysia set to commence operations in the latter half of fiscal 2024, positions it well to capture this burgeoning market.
Given the solid demand for AI servers, Supermicro’s potential to maximize its new capacities could result in a substantial revenue surge, building on the $7.1 billion reported in fiscal 2023. Therefore, investors are encouraged to seize this growth stock, which is poised for a sustained rally and remarkable long-term appreciation.
Consideration for a $1,000 Investment in Super Micro Computer
Before committing to Super Micro Computer stock, it’s wise to reflect on this:
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