Super Micro Computer (SMCI 7.53%) has been one of the hottest stocks on the market over the past year, with astronomical gains of 722%. That means that a $100,000 investment made in this server manufacturer a year ago is now worth more than $820,000. If Super Micro stock can keep up its momentum and head higher -- which it seems capable of doing -- it may be able to turn that investment into a million dollars in what would be a very short period.
But if you're one of those who missed this past year's rally, does it make sense to buy this stock right now in anticipation of more gains ahead?
In other words, if you have $100,000 to invest after paying your bills, clearing loans with high interest rates, and saving enough for tough times, should you put that money into this tech stock in the hopes that it could replicate its performance and help you become a millionaire? Let's find out.
NASDAQ: SMCI
Key Data Points
Super Micro Computer is at the beginning of a terrific growth curve
There is a simple reason why Super Micro stock has simply taken off in the past year -- artificial intelligence (AI). The race to develop generative AI applications has led to a sharp jump in the demand for chips that are capable of training large language models (LLMs). However, these advanced chips used for training AI models generate a lot of heat and consume a lot of electricity.
This is where Super Micro comes in with its modular server solutions, which have been optimized for deploying popular AI chips. For instance, in May 2023, Super Micro launched servers for deploying Nvidia's highly popular H100 chips, claiming that they can reduce the power costs of data centers by as much as 40%. What's more, the company claimed that its liquid-cooled servers for H100 can achieve "up to 86% reduction in direct cooling costs compared to existing data centers."
Not surprisingly, the market for liquid-cooled servers is expected to increase at an annual rate of 25% through 2029, according to Mordor Intelligence. On the other hand, sales of AI server solutions that Super Micro sells could jump 5 times by 2027 and generate annual revenue of $150 billion, according to Foxconn.
The good part is that this massive spurt in the demand for AI servers triggered outstanding growth at Super Micro. The company's revenue doubled in the second quarter of fiscal 2024 (which ended on Dec. 31, 2023) to $3.66 billion. The company is forecasting full-year revenue to increase to $14.5 billion, which would be more than double its fiscal 2023 revenue of $7.1 billion.
What's more, analysts are anticipating Super Micro will sustain its solid growth in the next fiscal year as well.
SMCI Revenue Estimates for Current Fiscal Year data by YCharts
As the chart above suggests, Super Micro's top line is expected to close in on $20 billion by the next fiscal year, while its earnings are set to increase substantially from fiscal 2023 levels of $11.81 per share.
It won't be surprising to see Super Micro sustain this outstanding level of growth for a long time because of the huge addressable opportunity that's available in the AI server market. At the same time, Super Micro has been expanding its production capacity to capture a bigger share of the end-market opportunity on offer.
On its latest earnings conference call, the company's management pointed out that its ongoing capacity expansion moves could take its "annual revenue capacity above $25 billion." All this explains why analysts anticipate Super Micro's earnings will increase at an annual rate of 48% for the next five years, but will this be enough to turn $100,000 into a million? Let's check whether there's a mathematical possibility of that.
Can this indeed be a millionaire-maker stock?
We saw in the chart above that Super Micro is expected to finish the current fiscal year (which will end in June) with $21.60 per share in earnings. If the company's earnings indeed grow at an annual rate of 48% for the next five years, its bottom line could jump to $153 per share after five years.
Super Micro has a five-year forward earnings multiple of 13. That represents a significant discount to the Nasdaq-100 index's forward earnings multiple of 30. But it won't be surprising to see the market reward Super Micro with a higher earnings multiple because of its AI-powered growth. Assuming Super Micro trades at 30 times forward earnings (using the Nasdaq-100 as a proxy for tech stocks) after five years, its stock price could jump to $4,590 based on the projected earnings after five years.
That would be 6 times the company's current stock price, which means that it could turn $100,000 into $600,000 over the next five years. While that falls short of a million, Super Micro could indeed hit that mark over a longer period. This AI stock could also help investors become millionaires if it is bought as a part of a diversified portfolio along with other fast-growing companies. That's why it would be a good idea to buy Super Micro right away, as it is trading at a cheap 7 times forward earnings.
