What happened
Shares of server company Super Micro Computer (SMCI +3.18%) rose 35.4% in February, according to data provided by S&P Global Market Intelligence.
Super Micro stock was the rare 2022 winner in the tech space, nearly doubling in a year when the Nasdaq fell over 30%. In January, the stock became the target of a short report from activist short-seller Spruce Point Capital, which caused the stock to sell off as investors booked gains and shorts piled in.
However, Super Micro reported solid results on Jan. 31 after market close, and the stock regained its footing through February. Moreover, Super Micro is a close partner of Nvidia, which reported better-than-expected results and gave a positive outlook on artificial intelligence (AI) server demand.
NASDAQ: SMCI
Key Data Points
So what
In its second fiscal quarter ending in December, Super Micro reported 53.8% revenue growth to $1.8 billion, beating expectations by $20 million, with non-GAAP (adjusted) earnings per share of $3.26, beating expectations by $0.23.
That's certainly eye-popping growth, and defies a lot of other technology hardware companies showing revenue declines. The outperformance can likely be attributed to Super Micro's energy-efficient and customizable server designs, which are finding favor among companies investing in AI and 5G capabilities, especially in an age of electricity price volatility.
Of note, Super Micro did guide for a sequential decline in the quarter ahead; however, the March quarter is usually a seasonally lower quarter. Moreover, CEO Charles Liang said he expects mid-30% growth for fiscal 2023 ending in June. Even more encouraging and maybe surprising, Liang also said he expects 20% growth in fiscal 2024.
How does Super Micro plan to defy the tough economy? Given that Intel, Advanced Micro Devices, and Nvidia all have brand-new advanced chips that just hit the market, Liang believes that will sustain Super Micro's sales growth, despite the economic slowdown.
Super Micro also has a close relationship with Nvidia. On Nvidia's Feb. 22 earnings conference call, CEO Jensen Huang had positive things to say about its data center business, claiming the advent of ChatGPT and generative AI had "brought AI to an inflection point." Nvidia CFO Colette Kress added she expects Nvidia's data center revenue to accelerate throughout the year.
That also bodes well for Super Micro, which sells AI servers powered by Nvidia GPUs. On SMCI's conference call, management pointed to AI/GPU platforms showing strong outperformance, exceeding 20% of revenue and calling AI/GPU servers a "significant opportunity."
Now what
Super Micro Computer is a server assembler, which doesn't seem like that great of a business. However, its close co-development relationships with Nvidia, AMD, and Intel, as well as its focus on energy-efficient server system design is certainly "serving" it well these days. Moreover, even after the stock's massive run, it only trades at a 9 P/E multiple.
All in all, Super Micro still looks like the value investor's way to play the AI megatrend.
