What happened
Shares of Super Micro Computer (SMCI 8.89%) climbed 32.5% last month, according to S&P Global Market Intelligence. The stock benefited from momentum in the computer hardware and semiconductor industries, and it moved even higher after it released bullish preliminary earnings results.
So what
Super Micro started the month out strong without any major company-specific news. It offers computer hardware products, such as servers, networking equipment, motherboards, and chassis. This industry can be highly cylical, but it's been on fire lately, with peers such as Arista Networks (NYSE: ANET) and Oracle (ORCL 2.02%), along with the iShares Semiconductor ETF (SOXX 2.11%) all gaining nearly 50% year to date. Hardware and semiconductor stocks struggled in 2022 thanks to macroeconomic challenges, but they've enjoyed a recovery in recent months.
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As hardware market conditions stabilize, investors have been intrigued by the long-term opportunities created by high-growth tech trends such as cloud computing, artificial intelligence, blockchain, and autonomous vehicles. Some of Super Micro's high-profile partners, such as NVIDIA (NVDA 6.18%), have impressed Wall Street with their commentary on the improving conditions and emerging growth drivers. That optimism has been a catalyst for Super Micro Computer's stock, which shares those fundamental drivers.
Super Micro put a fitting stamp on that sectorwide momentum on July 20 when it announced preliminary earnings ahead of its quarterly filings and conference call. The company increased it's quarterly-sales guidance by roughly 20%, with an even larger increase to its earnings forecast. This solidified optimism that the hardware recovery was well underway thanks to surging data center demand.
Now what
It's hard to argue that short-term conditions aren't improving for Super Micro Computer, and it has excellent growth catalysts for the medium and long term. The stock's forward price-to-earnings (PE) ratio is around 28, depending on which analysts' earnings-per-share (EPS) forecasts are used among the wide range of estimates. Without a dividend to keep share prices more stable, a forward PE ratio approaching 30 is high enough to result in above-average volatility for the stock if market conditions sour. If the economy doesn't attain the elusive soft landing, a recession could draw this stock down further than major indexes. However, the price isn't so speculative that it should scare off bullish investors who believe in Super Micro's long-term fundamental drivers. There's plenty of room to the upside if the company can grow with its target market for the next few years.
