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The start of the holiday shopping season reminds us that 2023 is coming to an end. And what a year it has been! Many tech stocks have skyrocketed this year as a result of the artificial intelligence (AI) boom, which seems to have just begun. According to Statista, the AI market could grow to be worth nearly $2 trillion by 2030.
While tech industry titans like Nvidia (NVDA), Amazon (AMZN), and Microsoft (MSFT) have become the obvious choices to bet on AI growth, investors looking to capitalize on this technological wave should also take a look at Super Micro Computer's (SMCI) fundamentals. The stock is up an eye-catching 262% year-to-date, outperforming the Nasdaq Composite Index's ($NASX) 36% gain. Nonetheless, Wall Street believes the stock has more room to run.
What Does Super Micro Computer Do?
As the world hurtles into a new technological era led by AI and machine learning, many tech companies are raising the stakes in the game. Super Micro Computer is renowned for its energy-efficient servers with innovative features such as liquid cooling, building-block architecture, and storage solutions. The company's innovative hardware offerings include high-density servers and specialized hardware accelerators.
It serves the expanding needs of cloud and edge computing, 5G networks, the Internet of Things, autonomous driving, and AI servers in over 100 countries. Super Micro has a long-standing partnership with prominent players like Nvidia, Advanced Micro Devices (AMD), and Intel (INTC)
SMCI's Strengthening Fundamentals
Between fiscal 2019 and fiscal 2023, Super Micro Computer’s revenue has grown from $3.5 billion to $7.1 billion, while earnings have increased from $1.39 to $11.43 per share. Even in the company's most recent first quarter of fiscal 2024, the results were impressive.
Despite supply constraints in AI graphic processing units (GPUs), total revenue of $2.1 billion came in higher than $1.85 billion in the prior-year quarter, and surpassed estimates by $57 million. Additionally, adjusted earnings per share (EPS) of $3.43 beat analysts’ estimates by $0.18.
Due to its rapid global expansion and high demand, the company recently announced that it can now deliver 5,000 liquid-cooled racks per month, up from its initial target of 4,000. At its current utilization rate of about 60% from its U.S. headquarters and Taiwan facility, the company expects to easily generate $18 billion in annual revenue.
Furthermore, the company opened a low-cost manufacturing facility in Malaysia this year, which it believes will result in a better cost structure and higher volume. Super Micro anticipates a "seasonally strong" second quarter.
Driven by a strong start to fiscal 2024, management raised the guidance for revenue for the full year to fall between $10 billion and $11 billion. Meanwhile, analysts’ prediction of revenue of $10.8 billion, a growth of 52% year-over-year, is also in line with management’s forecast. For the fiscal year, adjusted EPS could rise by 49% to $17.59.
While SMCI is not as prominent as some industry giants, its focus on niche markets and specialization in AI hardware infrastructure position it for a bright future.
What's The Stock Price Prediction For SMCI?
Super Micro Computer stock remains a “strong buy” in the analyst community. Five of the seven analysts who cover the stock rate it as a "strong buy," while two rate it as a "hold." Following strong first-quarter results, Rosenblatt analyst Hans Mosesmann increased the target price for SMCI to $430 from $375, while sticking to his “buy” rating.
On average, the Street’s target price for SMCI stands at $360.43, implying an upside potential of 21%.
The stock trades at 14 times forward earnings and 1.2 times forward sales. Analysts predict fiscal revenue and earnings growth of 16% and 19%, respectively.
Based on its fiscal 2025 growth estimates and AI-driven opportunities in the coming years, SMCI's valuation seems reasonable.
The Final Word on Super Micro Computer
Given the massive growth projected for AI servers, Super Micro Computer is poised to be a leading player in the space. CEO Charles Liang is confident the company can achieve $20 billion in annual revenue in a “couple of years.” This represents a massive jump from the estimated $10 billion in revenue in fiscal 2024.
Investors eyeing growth opportunities in the AI realm should consider holding a stake in this hypergrowth stock. Despite the outsized gains this year, I believe there is much more upside to SMCI in the near term.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
