Super Microcomputer (NASDAQ: SMCI ) Was the top performer in the stock market in 2023 with eye-popping gains of 246%. The market rewarded the company handsomely for its impressive growth and prospects, and the good news is that it’s off to a solid start in 2024 as well.
Shares of the company, whose server platforms are in high demand thanks to the spread of artificial intelligence (AI), have already risen nearly 20 percent in the new year. While there hasn’t been any specific company-specific news, the overall buzz around AI seems to be picking up Supermicro.
More specifically, investment banking firms OppenheimerRecommend to buy AI chip stock as such Nvidia, BroadcomAnd Marvell Technology It seems to have rubbed off on the Super Micro. This is not surprising as increased demand for AI chips, especially those deployed in servers to train large language models (LLMs), will positively impact SuperMicro’s sales.
The supermicrocomputer is at the beginning of a massive development curve.
Supermicro provides modular server and storage technology for a variety of applications such as cloud computing, enterprise data centers, AI, and telecommunications. The company has made a big move by optimizing its platforms for AI servers, a market that is currently growing at a breathtaking pace.
For example, in May of last year, Supermicro released a liquid-cooled rack-scale platform for installing Nvidia’s H100 AI graphics cards. Supermicro claims that its AI-optimized, liquid-cooled server racks can reduce power consumption in a data center by an estimated 40 percent compared to air-cooled data centers. The company also states that its H100 focused liquid-cooled racks can reduce cooling costs in existing data centers by up to 86 percent.
Unsurprisingly, SuperMicro saw a huge increase in demand for its server racks as sales of Nvidia’s H100 processors increased. Nvidia reportedly sold 1.5 million units of the H100 in 2023, a number that is expected to reach 2 million this year. At the same time, it’s worth noting that Nvidia is set to bring new AI chips to the market this year, such as the updated H200 AI GPU and the GH200 Grace Hopper Superchip.
These new chips explain why Nvidia is busy securing a large supply of components in 2024 to expand its shipments. The good thing is that Supermicro is already in a position to take advantage of the new Nvidia chips coming to market with optimized server solutions. For example, Supermicro began shipping platforms optimized for the GH200 in October 2023, and has updated its product lineup to include H200-optimized servers as well.
More importantly, the market for AI servers is expected to grow at an exponential rate for a long time. According to contract electronics maker Foxconn, sales of AI servers could reach $150 billion in 2027, up from just $30 billion last year. Supermicro is well-positioned to take advantage of this opportunity as it derives more than half of its revenue from sales of AI-optimized platforms, and is updated to accommodate new chips from market leaders such as Nvidia. Hastens to release products.
As a result, it would not be surprising to see Super Micro maintain its impressive growth rate for a long time to come.
Buying this AI stock is a no-brainer thanks to its impressive growth and cheap valuation.
Super Micro expects to end fiscal 2024 with revenue of $10 billion to $11 billion, up 49 percent from last year’s figure of $7.12 billion at the midpoint. Moreover, the company’s earnings for the current fiscal year are expected to rise 46% to $17.28 per share, according to consensus estimates. However, it would not be surprising to see this estimate increase as Super Micro is busy ramping up its production capacity.
The company expects to increase its capacity in the Asia-Pacific region by 2-3 times this fiscal year with the help of a new facility in Taiwan. Additionally, its Malaysia campus is expected to come online in the third quarter of 2024. Supermicro believes its capacity additions could help boost its revenue potential to $20 billion, a goal management believes could be “just a few years away.”
If that’s indeed the case, Supermicro’s top line could grow at a compound annual growth rate of 38% in fiscal 2025 and 2026 (using estimated fiscal 2024 revenue of $10.5 billion as a base). So investors should consider buying this AI stock now as it is trading at just 2.6 times sales. Moreover, the company’s price/earnings-growth (PEG) ratio of 0.94 suggests that it is currently undervalued.
However, given the impressive momentum already achieved in 2024, the supermicrocomputer stock may not be available at such attractive multiples for long, which is why savvy investors may want to buy it before it gets too high. It would be a good idea to buy one.
Should you invest $1,000 in a supermicrocomputer now?
Before buying stock in Super Microcomputer, consider this:
gave Motley Fool Stock Advisor The analysis team only indicated what they believed. 10 Best Stocks For investors to buy now… and the Super Microcomputer was not one of them. 10 stocks that made the cut could generate monster returns in the coming years.
Stock Advisor Provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular updates from analysts, and two new stock picks each month. gave Stock Advisor The service has more than tripled the return of the S&P 500 since 2002*.
See 10 stocks
*Stock Advisor returns on January 8, 2024
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Nvidia. The Motley Fool recommends Broadcom, Marvell Technology, and Super Microcomputer. The Motley Fool has a Disclosure Policy.
This super artificial intelligence (AI) stock is already up 20% in 2024. Here’s why it’s still a screaming buy. Originally published by The Motley Fool.