Nvidia (NASDAQ: NVDA) has been the darling of Wall Street for a while. Shares of the artificial intelligence (AI) chipmaker are up an astounding 1,700% over the last five years.
This year, however, another stock has caught Wall Street's eye: Up an eye-popping 98% year to date, Super Micro Computer (SMCI 0.41%) has to be the hottest stock on Wall Street.
But the question for investors is this: Is the company just a flash in the pan, or is it a stock with real staying power?
Image source: Getty Images.
What does Super Micro Computer do?
The first thing to know about Super Micro Computer is that the company has been around for decades. Incorporated in 1993, the company's stock debuted via an initial public offering (IPO) in 2007.
The company makes and sells computer hardware, with a focus on server, storage, and security equipment. And while the company's sales grew significantly over its first decade and a half as a public company, a new factor has kicked its revenue into high gear over the last 12 months: AI.
In short, AI-powered tools require a lot of computing power -- and I mean a lot. Companies like Meta Platforms, Alphabet, and Tesla are buying AI chips like hotcakes. Meta CEO Mark Zuckerberg, for example, announced in January that Meta was planning to purchase 350,000 H100 chips from Nvidia.
Bear in mind, each one of those chips costs as much as a new car, $30,000 or more, and companies like Meta want to put them to use as quickly as possible, as they race to develop the next big breakthrough in AI. That means they want off-the-shelf server racks that will get their new chips up and running quickly, safely, and efficiently.
And wouldn't you know it: Supermicro makes the server racks and infrastructure that makes that possible. Moreover, its proprietary cooling technology is often sought out by the hyperscalers who run data centers due to its ability to boost AI chip performance.
Supermicro founder and CEO Charles Liang summed up the market landscape on a recent earnings call:
Supermicro is at the forefront of the AI revolution, where the pace of innovation is accelerating. We are leading the race by developing the most innovative AI infrastructure on many platforms at rack scale, for almost any industry, and for any market vertical. ... We are in overdrive to accelerate ... [our] business model with this AI boom. [In] the meantime, we are preparing ourselves for the next phase of ... [our] business growth. ... Now is certainly the most exciting time yet for Supermicro.
To put it another way, Super Micro is riding the tidal wave of demand for AI chips by supplying the hyperscalers with the brick-and-mortar infrastructure that keeps their expensive AI chips running efficiently -- and it's making a ton of money in the process.
As of its most recent quarter (the three months ending on Dec. 31, 2023), the company's revenue skyrocketed by 103% to $9.2 billion on a trailing-12-month basis. Moreover, the company raised guidance for the full fiscal year (the 12 months ending on June 30, 2024) to $14.5 billion, up from a prior estimate of $10.5 billion.
Can Supermicro become the next Nvidia?
In some ways, Supermicro has already exceeded Nvidia. For example, the company's shares are up 3,630% over the last five years, while Nvidia's are up "only" 1,700%.
Yet, in a larger sense, Supermicro has a long way to go to catch Nvidia. The company's market cap is $30 billion; Nvidia's market cap is well over $1 trillion.
In that respect, it's unlikely that Supermicro will ever catch up to Nvidia. However, for growth-oriented investors looking for a hypergrowth stock that is highly leveraged to the AI revolution -- look no further than Super Micro Computer.
