We are just entering the era of generative AI, a development that represents a compelling catalyst for Super Micro Computer (SMCI). The San Jose-based company specializes in high-performance servers and storage solutions and needs to be on investor’s radar.
According to a recent survey by MIT Technology Review Insights, three-quarters of businesses worldwide experimented with generative AI in 2023. While initial use cases were mostly limited to low-value and repetitive tasks, the expansion of this technology is expected to broaden at a very fast pace. The majority of surveyed respondents anticipate that AI functionalities will more than double this year, paving the way for even greater usage in 2025 and beyond.
Amid growing excitement about AI’s potential to revolutionize our work, life, and leisure, Super Micro Computer is in the very early stages of reaping substantial benefits. The company’s wide array of servers and systems designed for AI computing and deep learning has positioned it as an overlooked winner in the AI category.
Super Micro Computer stock is already up more than 300% year-to-date. The next closest U.S. large cap gainer is Bitcoin play MicroStrategy (MSTR) which is up 130%. With AI momentum building, SMCI may be impossible to catch by year end.
A Blowout Fiscal Q2 Performance
Super Micro Computer’s stock run can be traced to January 19 following the announcement of its preliminary results for the fiscal second quarter. Driven by robust demand for its AI computing platforms and Total IT Solutions, the company’s quarterly sales was guided at $3.6 to $3.65 billion, notably ahead of management’s prior guidance range of $2.7 billion to $2.9 billion.
But when the company reported second quarter results on January 29, investors were greated with an even higher reported revenue of $3.66 billion.
Adjusted EPS was projected at $5.59, also coming in ahead of management’s expected range of $5.40 to $5.55 and a prior guidance of $4.40 to $4.88.
Following its impressive Q2 report, marked by significant new business acquisitions and market share expansions, Super Micro Computer significantly increased its full-year guidance. The company now anticipates fiscal 2024 revenues to range between $14.3 billion and $14.5 billion. At the midpoint, this projection indicates an astounding year-over-year growth of 104%.
A One-Stop IT Shop
The remarkable rise of Super Micro Computer is attributed to its growth rate, which is approximately five times faster than the overall tech hardware industry. This success can be attributed to delivering the right products at the right time to the right customers while simultaneously broadening its foundational offerings.
While AI servers and storage systems continue to be a primary demand driver, the company’s extensive IT solutions enable enterprises to advance its cloud and AI initiatives under one banner.
Meanwhile, software, security and services are all increasingly contributing to the company’s growth and diversifying its business model. Should the momentum of AI and Total IT offerings persist, Super Micro Computer is on track to achieve its ambitious revenue target of $25 billion as soon as 2025.
Wall Street Opinions On SMCI Are Mixed
Bears will point to Super Micro Computer’s trailing P/E ratio of 84 times as inflated, especially when compared to the industry average of 44 times. However, considering its exceptional growth metrics over the past year and expectations for the momentum to continue, Super Micro Computer stands out from a typical tech stock. With anticipated sales doubling this year, envisioning the stock’s P/E ratio expanding to at least 100 times is not far fetched.
Wall Street has been playing catch up on Super Micro Computer, a game that could continue if the company continues to deliver outsized growth. After the stock price surpassed $1,000 a month ago, analyst price targets have ranged widely, from Goldman Sachs’ $941 to Argus Research’s $1,350, with three analysts adopting bullish stances, two maintaining neutral positions, and none expressing bearish views during this period.
SMCI is likely due for another pullback similar to what occurred in mid-February. However, if the AI theme and retail investor interest persist, this may amount to another ‘buy-the-dip’ opportunity.