We recently published a list of 10 Best Affordable Tech Stocks To Invest In Now. In this article, we are going to take a look at where Super Micro Computer, Inc. (NASDAQ:SMCI) stands against the other best affordable tech stocks to invest in now.
What's Happening in the Technology Sector?
The US tech stocks have recently faced significant pressure, contributing to a decline in major stock indexes amid ongoing discussions about tariffs. Semiconductors is one of the segments facing a downturn. Jeff deGraaf, Renaissance Macro Research chairman, joined CNBC on November 17 to talk about the state of semiconductors. deGraaf thinks that the rally as it stands today is somewhat overbought internally. This means that while the overall market may be experiencing upward movement, there are underlying signs that it may not be sustainable. An overbought condition typically indicates that asset prices have risen too quickly and may be due for a correction. However, deGraaf also mentioned that the current market is a trend market, not a momentum market, which suggests price movements are driven by broader economic trends and fundamental factors rather than short-term speculative trading. He notes that after the recent elections, there was no significant change in market momentum. This stability reinforces his view that the market has achieved escape velocity, indicating that it is positioned to continue its upward trend despite potential challenges.
He mentioned that the market is still tilted towards cyclical rather than defensive stocks. However, the situation is tricky as semiconductors are experiencing a downturn, which is a huge cyclical industry group. While the semiconductors have been down the software sector has been up on a relative basis. deGraaf noted that he wants to rotate out semiconductors broadly. While elaborating further he mentioned that his statement is based on relative performance, which is very crucial from an investment perspective. He added that except for a few names the semis have the worst momentum and long-term trend strength in the broad market. deGraaf pointed out that NVIDIA has been an exception to its group let alone the greater market, and for that reason, he also wants to avoid the semiconductor giant and rotate out of semis broadly.
Lastly, he pointed out the software group, saying that a lot of software names are improving and he thinks it makes sense to reallocate dollars to software companies as they have some good momentum.
Moreover, in one of our recent pieces, titled "10 Most Promising New Technology Stocks According to Hedge Funds", we discussed how AI application across various sectors is expected to boost technology IPOs during the year. Here's an excerpt from the article:
After a prolonged slump, the technology IPO is experiencing a revival in 2024, particularly among companies leveraging artificial intelligence. According to a July 10 report by Morgan Stanley, the firm’s bankers predict to see at least 10 to 15 tech IPOs this year, driven by the growing interest in AI applications across various sectors, especially within technology and healthcare.
A team of technicians in a server room, testing and managing the newest server solutions.
Our Methodology
To compile the list of the 10 best affordable tech stocks to invest in now, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we shortlisted technology stocks trading below the Forward P/E of 15 and whose earnings are expected to grow during the year. Next, we sorted our initial list by market capitalization and cross-checked the Forward P/E of each stock from Seeking Alpha and earnings growth from Yahoo Finance. Lastly, we ranked the stocks in ascending order of the number of hedge fund holders as per Insider Monkey’s database for Q3 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Super Micro Computer, Inc. (NASDAQ:SMCI), is a technology company that specializes in manufacturing high-performance services and storage systems. Its products are critical for cloud computing, data centers, and artificial intelligence. It is one of the best affordable tech stocks to invest in now.
The company is recognized as one of the leading tech providers fueling the AI revolution. It has grown its revenue and net income by 34% and 76%, during the past 5 years, respectively. However, the company has been in the grey due to a series of challenges regarding its filings with the SEC.
The challenge appeared when Super Micro Computer, Inc. (NASDAQ:SMCI) was unable to file its 10-K form for the latest fiscal year ending June 30, 2024, for which the deadline was August 29. The company has still not been able to file the form and is at threat of being delisted from the NASDAQ stock exchange.
Management has appointed an independent auditor tasked with following the compliance plan, which if expected by the stock exchange will give the company another 180 days to file the forms.
The delay and threat of delisting have been impacting the share price of the stock. On the other hand, the update on first quarter results for fiscal 2025, indicated that the company is expecting net sales to be between $5.9 billion to $6 billion. The midpoint of the expected net sales range points towards an 181% increase year-over-year, indicating that demand for its products still remains strong. The stock was held by 33 hedge funds in Q3 2024, as per Insider Monkey’s database.
Columbia Acorn Fund stated the following regarding Super Micro Computer, Inc. (NASDAQ:SMCI) in its Q3 2024 investor letter:
“Super Micro Computer, Inc. (NASDAQ:SMCI) had a tough quarter due to a confluence of negative events. It declined, but is still up significantly for the year. While demand for the company’s AI server racks remains strong, with revenue up over 100%, gross margins have fallen sharply for two straight quarters, implying a price war. In addition, Super Micro was the subject of a short-seller report and a delay in filing its annual report with the SEC. We have been taking profits in the stock all year and have only a small position, which we are maintaining given the strong performance and demand for Super Micro’s AI racks and a depressed stock valuation.”
Overall, SMCI ranks 7th on our list of best affordable tech stocks to invest in now. While we acknowledge the potential of SMCI to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SMCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
