The speed with which artificial intelligence (AI) took hold last year surprised many investors, and it sparked a changing of the guard among the ranks of the world’s most valuable companies. apple was eventually deposed by Microsoftwhich now tops the list as the only company with a market cap currently exceeding $3 trillion. NvidiaWith the help of its industry-leading AI processors, it has tripled last year to $2.6 trillion, falling to No. 3 behind Apple. the alphabet, AmazonAnd Meta platforms All major players in the AI revolution are also members of this blessed community.
With a market cap of only $53 billion (as of this writing), it sounds like hyperbole to suggest this. Super Microcomputer (NASDAQ: SMCI )Also known as Supermicro, could make a run in the $1 trillion club. However, the growing demand for AI-centric servers and the company’s decades of expertise suggest that Supermicro is a dark horse candidate in the race.
Servers of the Stars
While Supermicro has been developing custom server solutions for more than 30 years, the company operated in relative obscurity until the rapid adoption of AI. It turns out that Super Micro has accumulated quite a pedigree from the glare of the spotlight.
Supermicro has built its reputation by providing highly customizable, energy-efficient, liquid-cooled rack-scale servers designed to handle the rigors of AI and hyperscale data centers. The company has developed strong working relationships and works closely with all the top AI chipmakers to ensure that its rack-scale servers are high-performance while maintaining energy efficiency and proprietary capabilities in the industry. We also provide the lowest price. It boasts of a partnership with Nvidia, Advanced Micro DevicesAnd IntelAmong others.
It’s a winning strategy with AI-centric servers flying off the shelves. For its fiscal 2024 second quarter (ended Dec. 31), Supermicro’s revenue rose 103% year over year to $3.7 billion, while its earnings per share (EPS) rose 85% to $5.10. Management is predicting continued triple-digit growth, bringing its full-year guidance to $14.5 billion, representing growth of 104%.
Management reports that Super Micro grew five times faster than the industry average over the past 12 months, suggesting that the company is stealing market share from its competitors. Analysts at Northland agree that the company has increased its market share to 11 percent, leaving “plenty of room for future share gains.”
Path to $1 trillion
Super Micro is in an enviable position among AI server manufacturers. The company is small enough to be nimble and has a long history of providing customized server solutions to enterprises. Additionally, the strong and enduring relationships Supermicro has built with chipmakers gives it an abundant supply of processors used for internal track and AI. Despite these advantages and the obvious opportunity, Supermicro has a long way to go to join the ranks of billionaires.
According to Wall Street, Super Micro is poised to generate $14.7 billion in revenue in 2024, giving it a forward price-to-sales (P/S) ratio of about 3.6. Assuming its P/S remains constant, Supermicro would need to grow its revenue by about $275 billion annually to support a $1 trillion market cap. Clearly, the company is currently ramping up production to support $25 billion in annual sales, so revenue of that magnitude is still a ways off.
If the company is able to maintain its triple-digit, year-over-year growth, Supermicro could reach a $1 trillion market cap by 2031. If we lower its earnings growth rate estimates by 50 percent, Super Micro could. Possibly Reaching a $1 trillion market cap by 2035.
There is reason to believe that strong demand for AI-centric servers will continue. Bufa Analyst Rooplu Bhattacharya points out that the data center market will grow at a compound annual growth rate (CAGR) of 50% over the next three years, and Supermicro’s revenue could grow even faster.
Nvidia CEO Jensen Huang is equally upbeat, suggesting that the installed base of data centers will double to $2 trillion in the next four to five years.
If Super Micro captures even a fraction of this vast opportunity, the company will soon join the $1 trillion club.
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1 Unstoppable Stock That Could Join Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta in the $1 Trillion Club was originally published by The Motley Fool.