Artificial intelligence (AI) is scripting the booming narrative for most tech stocks. While the
big players dominate the headlines, there are numerous AI stocks flying
under the radar, presenting an enticing opportunity for investors.
As the AI era progresses, the demand for more potent and efficient
computing solutions is soaring. Super Micro Computer (SMCI) has
emerged as a company adept at meeting this need, as evidenced by its
astonishing 246% surge in stock value last year, vastly outpacing the
Nasdaq Composite’s ($NASX) gain of 44.5%.
Remarkably, while the broader market has stumbled at the start of this
year, SMCI has already soared by an eye-watering 102% in just a little
over a month in 2024. Meanwhile, larger AI players, Nvidia (NVDA) and
Advanced Micro Devices (AMD), have posted gains of 34% and 20%
year-to-date, respectively.
SMCI’s remarkable ascent can be largely attributed to its exceptional
fourth-quarter results, driven by the revolutionary impact of its AI
solutions on revenue and earnings. Let’s delve further into this
impressive performance.
A Breakthrough Q4 Report by Super Micro Computer
Super Micro Computer manufactures advanced computing systems that
utilize parallel processing to execute complex tasks at unprecedented
speeds. Its energy-efficient offerings have garnered attention across
various industries. With a current valuation of $31.1 billion, this
smaller player, compared to industry titans Nvidia and Advanced Micro
Devices, is rapidly accelerating its growth by capitalizing on AI.
In its recent second quarter of fiscal 2024,total revenue of $3.66 billion soared by a monumental 103.3% year-over-year. This
quarter marked SMCI’s first with over $3 billion in revenue.
Particularly noteworthy is the fact that the quarterly revenue
surpassed the company’s entire revenue for fiscal 2021.
The surge in revenue propelled a substantial 71.5% increase in
adjusted earnings per share (EPS) to $5.59 for the quarter.
Super Micro Computer has collaborated withAMD andNvidia to deploy their graphic processors in
expanding its AI product range. During thesecond-quarter earnings call, CEO Charles Liang highlighted the soaring demand for the company’s AI
rack-scale solutions, particularly the Deep-Learning and LLM-optimized
ones based on Nvidia’s H100 processors.
SMCI Stock: Reaching for the Stars
SMCI is currently aiming to double the size of its existing portfolio.
The company has outlined plans to launch new platforms, such asNVIDIA CG1, CG2 Grace™ Hopper™ Superchip, H200 and
B100 GPUs, L40S Inferencing-optimized GPUs, AMD MI300X/MI300A, and
Intel’s Gaudi 2/3, for high-volume production in the next few months.
Furthermore, the company is innovating its liquid-cooling technology to
ensure efficient operation of these powerful AI platforms.
Management has raised their fiscal 2024 guidance to a range of $14.3
billion to $14.7 billion, with analysts predicting $14.46 billion in
revenue for the fiscal year. They further anticipate an 82.9% surge in
adjusted EPS to $21.60 for the entire fiscal year 2024. Closing the
quarter with $726 million in cash and cash equivalents, paired with
$376 million in bank debt, SMCI also generated a free cash flow of $267 million by quarter-end. The
company’s burgeoning earnings and stable cash balance should expedite
debt clearance. Management has underscored the unlikelihood of needing
to raise cash through stock dilution, boasting a variety of other
cash-generating programs.
CEO Charles Liang expressed confidence, asserting, “Overall, I feel
very confident that this AI boom will continue for many quarters, if
not years.” Despite its exponential growth, SMCI is reasonably priced
compared to its peers, presently trading at 18 times forward earnings
and 1.59 times forward sales. Analysts foresee a 28.9% revenue spike
and a 30.7% earnings upsurge in fiscal 2025.
On the whole, Wall Street deems Super Micro stock a “moderate buy.” Of
the seven analysts covering the stock, five rate it a “strong buy,” one
rates it a “hold,” and one suggests a “strong sell.” Following the
post-earnings leap, SMCI has not only eclipsed its mean target price,
but also surpassed the high target price of $450.
Following the Q2 earnings,
Rosenblatt analyst Hans Mosesmann
raised the target price for SMCI to $700, indicating a potential upside
of 21%, while maintaining a “buy” rating.
The Key Takeaway
Super Micro Computer holds promising prospects, especially with
ongoing technological, scientific, and AI advancements. These
innovations possess immense potential to spearhead breakthroughs in
various domains. Despite its recent unprecedented highs, SMCI’s
undervaluation presents an opportune moment to secure a stake before its
value escalates further.
