Will Super Micro Computer Be the Next Magnificent Stock in 2024?

AI is a big driver for tech companies these days. For proof, one need only look to Microsoft, whose early investment in OpenAI allowed it to integrate artificial intelligence across many of its products and services, and Nvidia, whose market dominance in providing AI and data center products has led to massive gains and a valuation exceeding $2 trillion. 

With the spotlight on the tech sector, investors are starting to notice the sideline players. These companies may not have direct involvement in AI but are nonetheless instrumental in its development. Super Micro Computer Inc. is one of the most prominent examples and the focus of our discussion today. 

Like Nvidia, and before artificial intelligence took over the headlines, SMCI already had a well-established reputation for being a reliable and innovative data center solutions and infrastructure support vendor. Now, the company has caught the attention of investors, and its increased market cap has made it eligible to join the S&P 500. 

So, are we looking at the next candidate for the Magnificent Seven (or Eight)? Let’s find out. 

What Does Super Micro Computer Inc. (SMCI) Offer? 

Super Micro is a noted provider of server solutions, storage systems, workstations, networking equipment, embedded systems for automation and networking, and sundry components like motherboards and cooling solutions. 

Now, that entire list might not sound like much to the uninitiated. However, the crucial thing to note is that almost all of SMCI’s products are geared towards AI and data centers—even well before the current AI boom. 

Aside from that, the company has a reputation for providing easy and adaptable server solutions, almost to the point of plug-and-play. SMCI-built server architectures can be easily upgraded for future-proofing, making them better value propositions than the competition offers for enterprise-level data centers. The company also offers storage solutions, which is a massive consideration for growing AI companies since their platforms depend on it.

Another thing that SMCI excels at is data center cooling solutions. While some might think stuffing servers into rooms with centralized AC and cranking the temperature to the lowest setting is acceptable, the reality is far more complicated. SMCI’s Rack Scale Liquid Cooling Solutions have been seen to reduce electricity costs by 92% per server and 40% for the overall data center.  

Furthermore, companies like AMD, Intel, and Nvidia have been long-time partners of SMCI, even before the AI boom. So, while SMCI doesn’t have a direct stake in AI, its products and services put it firmly within the sector's beneficiaries. 

Super Micro's Addition to the S&P 500

SCMI is slated to join the S&P 500 on March 18, 2024, replacing Whirlpool. One of the requirements for joining the S&P 500 is a $15.8 billion market cap. As of the time of writing, SMCI is valued at over $50.6 billion, making it more than eligible for the index. 

SMCI's Price and Financials

SMCI’s price chart is quite impressive, no matter the time period. For context, the stock’s current price of $1,074.34 represents a 52-week and all-time high. In fact, it has been consistently carving out highs since the start of the year. 

Also, SCMI recorded a massive 998.17% 52-week return. Nvidia, with all its hype and press coverage, only had a 256.79% 1-year return. That's almost four times the return for SMCI investors in the same period. 

Meanwhile, Super Micro's latest quarter results continue to impress. Net sales reached $3.66 billion compared to $1.80 billion YoY, or a 103% growth. Net income grew 68% from $176 million to $296 million. EPS ended at $5.10, 3.24% more than analyst estimates. 

The company is optimistic about its prospects, so it recently raised its revenue guidance for FY'24 (ending on June 30) by more than $3 billion at the high end. This puts its estimated revenue growth for 2024 more than double 2023’s results. 

A Clamor Of Detractors, Or A Word Of Caution?

Several analysts appear either skeptical or are not so optimistic about SMCI’s prospects. Or, at least, they see the current valuation as too expensive. While there is merit to such concerns, the stock market tends to run on short term momentum. Investors seeing nearly 1,000% returns—with an almost $800 gain from this year alone- might fear missing out (FOMO). And that alone is never a good reason to invest.

Currently, SMCI has a “Moderate Buy” rating (recently downgraded from a Strong Buy rating), with 6 Strong Buys, 2 Holds, and 1 Strong Sell, with a high target price of $1,300. So, there is still room for growth. 

Is SMCI The Next Magnificent Stock?

While its prospects are excellent and the recent performance is certainly eye-watering, Super Micro Computer will need more than the current 1,000% return to reach the level of Microsoft, Apple, Amazon, and Nvidia. 

That doesn’t make it any less of a tempting buy, though. So, instead of saying with 100% certainty that SMCI is the next Magnificent stock, I’ll simply end by saying it’s a stock you should keep your eye on - and buy when it's trading at a more attractive level.

Yes, demands for data center solutions are ramping up. However, the company must keep up with the demands by expanding its production and offerings. The good news is that SCMI is already on track to expand its San Jose, Taiwan, and Malaysia facilities. It also recorded an average of 4,000 server racks produced monthly and is ramping up liquid cooling rack production capacity over the next few quarters. 

On the date of publication, Rick Orford 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.