The artificial intelligence (AI) revolution is in full swing, and according to one Wall Street analyst, things don't appear to be slowing down anytime soon for one extremely well-positioned company.
While most investors are gravitating towards the chip leader. Nvidia (NASDAQ: NVDA ) Currently, AI is and will continue to outpace other market winners. In fact, one S&P 500 AI company has even outperformed Nvidia this year. And despite the stock's stellar run to 2024, one Wall Street analyst predicts another 70% rise.
Supermicrocomputer has beaten Nvidia and liquid cooling is poised for a breakout.
This year, the server manufacturer Super Microcomputer (NASDAQ: SMCI ) Already up 212%, handily outpacing Nvidia's impressive 149% year-to-date gain.
Supermicro has undoubtedly benefited from a close partnership with Nvidia as a preferred server partner. However, the company is also gaining market share thanks to its in-house engineering capabilities.
Supermicro's strategy of building servers from “building block” pieces allows for rapid, mass customization while also saving customers money. With building block architecture, parts of the server are easily replaced and upgraded rather than replacing the entire unit.
Additionally, building block architecture and close relationships with Silicon Valley tech companies typically allow SuperMicro to build custom servers faster than competitors. With so many companies falling over themselves to build advanced AI infrastructure as quickly as possible, it's no wonder customers are flocking to Super Micro's solutions.
Also, super micro's long-standing ethos of saving resources, saving energy in the age of AI has come to the fore. AI chips require a lot of power and have to dissipate a lot of heat. To help further reduce energy costs, Supermicro is now introducing its Direct Liquid Cooling (DLC) technology.
DLC technology has been around for decades. However, because it is an additional cost and can take a long time to deploy in a data center, it has captured only 1% of the data center market.
However, AI servers are becoming very energy intensive and will soon require DLC unlike air-cooled racks. DLC data centers limit the need for extensive air conditioning systems, saving both energy and space within the data center and thus allowing even denser server clusters.
From its mere 1% market share, CEO Charles Liang expects a wave of DLC deployments to make up 15% of Super Micro racks this year and 30% next year. According to Liang, SuperMicro today can deliver a DLC solution within weeks, and deploying DLC can help reduce data center power consumption by up to 40 percent.
So, despite the company's 200% revenue growth last quarter, the benefits of DLC for consumers should help sustain the company's hypergrowth and margins for the foreseeable future.
Loop Capital believes Supermicro is headed for $1,500.
Over the past few years, Super Micro has routinely beaten even the most bullish expectations of analysts. But with this year's entry into the S&P 500 index, many Wall Street analysts have begun covering the stock.
One of the fastest growing is technology-based research shop Loop Capital. In April, Loop analyst Anand Baroah raised his price target on Super Microcomputer to $1,500 per share from $600.
Explaining the increase, Baroh rightly noted that SuperMicro has earned a reputation as an “increasing leader in both the complexity and scale required” for AI deployments. Additionally, Baroah sees SuperMicro's speed and agility as a key factor, explaining, “While it's not really possible to know the magnitude of these wins or the timeframe of deployments, there has been a general industry dynamic that That makes deployments faster than slower.”
To arrive at his valuation, Baroah sees Super Micro earning between $50 and $60 in fiscal 2026, which ends in June 2026, on revenue of between $30 billion and $40 billion. That compares to roughly $15 billion in revenue and $24 billion in fiscal 2024, which ends today, June 30.
With that kind of growth and earnings power, Baroh believes Supermicro can maintain a 25 to 30 price-to-earnings (P/E) ratio well into 2026. So, 30 times $50 or 25 times $60 gets one of their $1,500 goals.
Super Micro could be more profitable than Nvidia.
While Nvidia is the king of AI chips today, the company is also going to get an onslaught of competition from custom ASICs (application-specific integrated circuits) from other processor companies and cloud giants. However, Supermicro's servers can house any type of AI chip.
As such, SuperMicro should see continued growth and profit sharing, no matter which day the AI chip wins or whether the win is spread among several chipmakers. That makes the stock a solid buy today, even after its impressive year-to-date gains.
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Billy Doberstein and/or his clients have positions in Super Microcomputer and have the following options: short Jan 2025 $1,840 calls on Super Microcomputer, short Jan 2025 $110 calls on Super Microcomputer, short Jan 2025 $125 Super Microcomputer On computers, short January 2025 puts $130 on Super Microcomputer, short January 2025 puts $280 on Super Microcomputer, and short January 2025 puts $85 on Super Microcomputer. The Motley Fool has positions and recommends Nvidia. The Motley Fool has a Disclosure Policy.
1 Top Artificial Intelligence (AI) Stocks to Buy Before They Rise 70%, According to Loop Capital Originally published by The Motley Fool.