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The rush for companies to grab artificial intelligence (AI) market share has led to a surge in demand for the hardware that powers these powerful models and applications. Super Micro Computer (NASDAQ: SMCI) has been a significant benefactor, and the stock's exponential rise over the past year reflects that.
After soaring from under $100 to over $1,200 per share, the stock -- and the broader market -- have taken a breather in recent weeks.
Extreme price action can intimidate investors from buying a dip because they fear that the higher a stock soars, the further it will fall. But that could be an unwarranted fear in this case. Here is why Supermicro, as it is also known, could be a brilliant buy today.
The numbers support Super Micro Computer's meteoric run
It's hard to find a stock's price chart this impressive; gaining over 1,000% can take most stocks decades to accomplish, so hitting such a milestone in under 18 months is remarkable -- and rare. Artificial intelligence is the primary catalyst for this. According to some studies, AI's long-term potential is enormous ... a future trillion-dollar industry. Investors are scrambling to position their portfolios for that growth.
Supermicro sells modular server systems and components for data centers. This is an ample opportunity because most companies don't want to design these massive computer systems from the ground up; they want quick, turnkey computing power, which is right in Supermicro's wheelhouse.
Stock prices can often respond to expectations of what might happen, and the tremendous AI potential could justify some stock surges. Fortunately, hard numbers already support Supermicro's surging share price. The company has entered a growth spurt that saw its revenue grow 103% year over year in the second quarter of its 2024 fiscal year and 73% quarter over quarter. Management believes that growth is accelerating, guiding for over 200% year-over-year growth for the upcoming quarter.
Analysts believe the company will earn approximately $22.15 per share this fiscal year, which values the stock at a forward P/E of 43, despite its monstrous run over the past 18 months. In other words, Supermicro has already grown into the large shoes the market thinks it should own.
Looking to the future
Investing is about looking to the future, and you might need sunglasses to see Wall Street's bright expectations for this company. Analysts believe Supermicro will grow earnings by an average of 50% annually over the next three to five years.
That's a high bar, but one that Supermicro seems able to clear. After all, revenue is growing at a triple-digit rate. The business is already profitable, so that should largely trickle down to the bottom line. It doesn't even factor in additional growth levers like share repurchases that management could enact as its cash balance swells.