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Why Shares of Super Micro Computer Raced 13% Higher This Morning

By Nicholas Rossolillo – Nov 3, 2021 at 1:52PM

Key Points

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A solid earnings update has investors feeling optimistic.

What happened

Shares of Super Micro Computer (SMCI 3.00%) were up 13% today as of 12:35 p.m. EDT. The data center and server hardware supplier that bills itself as an energy efficient technologist reported earnings for its first quarter of fiscal 2022 (the three months ended Sept. 30). Revenue and earnings per share (EPS) both easily surpassed what the average Wall Street analyst was expecting.

Specifically, sales were up 35% year over year to $1.03 billion, and adjusted earnings per share were up 5% to $0.58.  

Two people in an office working on computer equipment.

Image source: Getty Images.

So what

Demand for computing hardware is on the rise among large enterprises. With cloud computing quickly becoming the norm for IT operations, an upgrade cycle in data centers is under way. Super Micro is benefiting from this trend, and its efficient electronic equipment can help its customers cut down on energy consumption and carbon emissions. The company has a long-term goal of reaching $10 billion in annualized revenue as this massive corporate migration to the cloud plays out over the next decade.

With surging demand and a global chip shortage that is extending sales lead times, the current pace of Super Micro's growth is expected to continue for the foreseeable future. Management expects full-year fiscal 2022 revenue to be as much as $4.6 billion, a 29% increase over last year at the high end of guidance.

Now what

Super Micro had a great quarter, but a few things bear considering before piling into this stock. Super Micro -- which relies on semiconductor and other electronic component designers like Intel, Advanced Micro Devices, and Nvidia as key partners -- is a historically low-margin business. Gross profit margin was a meager 13% during the last quarter in spite of booming sales. The company has steadily grown its business over the years, but IT hardware sales are cyclical in nature, and Supermicro's profitability has remained thin at best even as it has expanded.  

Nevertheless, with the stock trading at a respective 20 and 35 times trailing-12-month earnings per share and free cash flow, this stock might pique the interest of some value investors.

Nicholas Rossolillo and his clients own shares of Advanced Micro Devices and Nvidia. The Motley Fool owns shares of and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

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