Let’s cut to the chase: The potential of generative artificial intelligence (AI) to automate certain tasks and increase productivity has captured the attention of businesses everywhere. Generative AI can draft original documents, summarize existing data, create presentations, and even write and debug computer code — and new use cases are being discovered regularly. .
Cathy Wood, the enigmatic founder of Arc Investment Management, has long focused on disruptive innovation, and her view of the potential of creative AI is eye-opening. “AI is going to be the biggest productivity increase in our history,” he said. “The productivity gains are going to be staggering and staggering.”
At the center of this secular tailwind is a company. Super Microcomputer (NASDAQ: SMCI )Also known as Super Micro. Stocks have ridden the AI wave over the past year, but there could be more to come.
Servers of the Stars
While it may not be a household name, Supermicro has emerged in the last year or so as one of the leading providers of servers used in enterprise data centers, cloud computing, and AI systems. The company offers a wide selection of servers and storage systems, from complete plug-and-play systems to modular components. Super Micro helps customers install and upgrade their computing infrastructure.
The company has been developing state-of-the-art server and storage systems for over three decades. So when the opportunity presented by creative AI came knocking, Supermicro was there to answer the call.
Works closely with Supermicro. Nvidia, Advanced Micro DevicesAnd IntelAmong others, work with the latest and greatest AI-centric processors to ensure that its servers are continuously supplied — and without interruptions.
A wide and growing opportunity
Although AI has been around for decades, generative AI is the next big leap in technology. The aforementioned ability to massively increase productivity sets the technology apart from its predecessors. Businesses are also trying to get an edge, and companies of all kinds want a piece of the pie in the ability to save time and money.
Although estimates are a dime a dozen, no one can offer an exact estimate of the size of the market. According to Bloomberg Intelligence, generative AI could represent a $1.3 trillion market by 2032. Arc Invest may see further momentum. Big Ideas 2024 report, where Cathy Wood suggests that the AI software market alone could generate $13 trillion in additional spending by the end of the decade. While the size of the market is still elusive, one thing is clear: the opportunity is huge.
Blockbuster results
Supermicro’s results help explain the opportunity. For the company’s second quarter of fiscal 2024 (ended Dec. 31), Super Micro generated net sales of $3.66 billion, up 103% year-over-year and 73% sequentially. At the same time, adjusted earnings per share (EPS) of $5.59 represented a 71% increase. The company noted that its record growth was driven by demand for rack-scale systems used for AI.
Management expects the company’s growth to continue to grow. Super Micro is forecasting third-quarter revenue in the range of $3.7 billion to $4.1 billion, representing 205% year-over-year growth in the midpoint of its guidance. Profits are also expected to increase, with adjusted EPS of about $5.61, up 244%. The company also raised its full-year revenue guidance to $14.7 billion from $14.3 billion. atleast 100%
“Overall, I feel very confident that this AI boom will continue for several more quarters, if not years,” CEO Charles Liang said, noting the ongoing demand.
Super Micro is chasing a total addressable market estimated at $25 billion. To meet strong and growing demand, management has broken ground on two new production facilities near its Silicon Valley headquarters, in addition to the manufacturing facility already online in Malaysia.
A great opportunity
The supermicrocomputer stock is growing like wildfire, up 766 percent over the past year as of this writing. With gains of this magnitude, you’d be tempted to believe that the stock has gotten pretty expensive, but nothing could be further from the truth. Despite its parabolic rise, the stock still trades at just 2 times next year’s sales — a benchmark for a cheap stock.
Bargain-basement pricing, strong and growing demand for its products, and the secular tailwinds represented by AI explain why the super-micro generation is well-positioned to take advantage of this opportunity. in.
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Danny Vena holds positions at Nvidia and Super Microcomputer. The Motley Fool has positions and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and Super Microcomputer and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a Disclosure Policy.
Generational Investment Opportunity: 1 Artificial Intelligence (AI) Growth Stocks To Buy Now and Hold Forever was originally published by The Motley Fool.