After a dismal performance last year, growth stocks came roaring back in 2023 thanks to several tailwinds such as cooling inflation, the Federal Reserve's pause on interest rate hikes, a strong economy, and the reduced probability of a recession. That rally is expected to continue in 2024 as well.
Personal finance news provider Kiplinger estimates that S&P 500 companies could witness an 11% increase in earnings in 2024, up significantly from this year's growth of 2.3%. At the same time, the Fed is expected to cut interest rates in the new year. Not surprisingly, Wall Street is forecasting a strong showing from the stock market once again in 2024, with Goldman Sachs recently raising its 2024 S&P 500 forecast by 8% to 5,100.
As such, now would be a good time for investors to load up on growth stocks before 2024 arrives. Assuming you have $1,000 in investible cash after paying off your bills, clearing your high-interest loans, and saving enough for difficult times, it may be a good idea to put that money into shares of Super Micro Computer (SMCI 2.65%).
It is worth noting that $1,000 invested in Super Micro stock at the end of 2022 is now worth more than $3,500.
The good part is that you can still buy Super Micro stock at an attractive valuation. Let's look at the reasons why you should consider doing so right away.
Super Micro Computer's growth is set to accelerate in 2024
Super Micro Computer announced its fiscal 2024 first-quarter results (for the three months ended Sept. 30) last month. Its quarterly revenue was up 14% year over year to $2.1 billion. That's a solid number considering that Super Micro's business was hampered by a tight supply of components last quarter.
Still, the company points out that it was able to "deliver total solutions and large compute clusters, especially for generative AI workloads where our back orders continue to expand faster than our forecast." The good part is that Super Micro is working through the supply chain challenges and revealed last month that it has raised its manufacturing capacity of server racks by 20% to 5,000 racks a month.
This explains why the company is anticipating a big jump in growth in the current quarter. Super Micro expects fiscal second-quarter revenue to land at $2.8 billion at the midpoint of its guidance range. That would be a big jump of 55% over the year-ago period's figure of $1.8 billion.
What's more, Super Micro anticipates full-year revenue to land at $10.5 billion at the midpoint. That would be a 48% increase over fiscal 2023, which would be an improvement over the 36% growth it delivered in the previous fiscal year.
Super Micro was earlier anticipating fiscal 2024 revenue of $10 billion, but it looks like the company's focus on improving its production capacity led it to raise its guidance. However, it won't be surprising to see Super Micro delivering stronger revenue growth than it is currently forecasting due to two reasons.
First, demand for the company's server solutions is likely to remain healthy next year thanks to growing deployment of artificial intelligence (AI) servers. According to DIGITIMES Research, shipments of high-end AI servers could jump from 167,000 units in 2023 to 337,000 units next year. Super Micro is set to capitalize on this sharp spike in demand for AI servers next year, as its server racks are used for deploying AI chips from the likes of Nvidia, AMD, and Intel.
Second, Super Micro is working to further enhance its manufacturing capacity in 2024. The company's facility in Malaysia is expected to come online in the second half of the current fiscal year, or the first half of calendar 2024. George Wang of Barclays estimates that this new facility could boost Super Micro's annual revenue capacity to $30 billion. It is worth noting that management is confident of achieving $20 billion in annual revenue by fiscal 2026, and its capacity expansion could help it achieve that target.
Consensus estimates, however, are pointing toward slower growth for the next couple of years.
SMCI Revenue Estimates for Current Fiscal Year data by YCharts
However, the catalysts discussed suggest that Super Micro could outperform Wall Street's expectations and grow at a faster pace, which could drive solid gains in the stock price.
The stock looks set to soar higher
Assuming Super Micro does hit its $20 billion annual revenue target over the next three years and maintains its current price-to-sales ratio of 2.3, its market cap could jump to $46 billion. That would be a 2.7x jump over the company's current market cap of $17 billion, which means that $1,000 invested in this AI stock right now could be worth $2,700 within the next three years.
Given that Super Micro's sales multiple is lower than the S&P 500's average price-to-sales ratio of 2.6, buying this stock right now looks like a no-brainer with $1,000 in investible cash, given the potential upside it could deliver.
