Super Micro Computer (SMCI -0.15%) has been one of 2024's biggest winners, as the stock is up an incredible 209% this year. But, if you noticed this company sooner, you're an even bigger winner.
What would a $10,000 investment at the start of 2020 be worth now?
Supermicro is benefiting from the rise of AI
Super Micro Computer has been an incredible success story lately, as its highly customizable servers are starting to see massive demand. Companies of all shapes and sizes deploy these servers, and they can be used for tasks like drug discovery, engineering simulation, data storage, and artificial intelligence (AI) model training.
The latter sparked incredible interest in the stock lately, but the trend toward big data has been going on for quite some time. This has been the driving force behind Supermicro's stock for even longer, and with many companies behind in the computing arms race, Supermicro stands to benefit from the buildout.
But just how successful has the stock been? If you had invested $10,000 about four years ago, it would be worth a jaw-dropping $322,000.
Put a different way, a $31,500 investment at the start of 2020 would have made you a millionaire. A large chunk of this gain has come since 2023 started, with even more coming in 2024 alone.
That's because Supermicro is seeing unprecedented demand and expects this trend to continue.
In the second quarter of fiscal year 2024 (ended Dec. 31, 2023), Supermicro's revenue rose 103% to $3.67 billion. That's pretty good, but its guidance indicated 205% for the next quarter.
Super Micro Computer's business is strong, and the long-term outlook looks great. In Q1, management discussed its roadmap to $20 billion in annual sales. In Q2, that goal has increased to $25 billion.
That's still a big runway from what it expects to produce in fiscal year 2024 (ending June 30), with its full-year guidance coming in at $14.5 billion (increased from Q1's guidance of $10.5 billion).
Clearly, there's a lot of upside ahead for Supermicro, but is it time to take the gains and deploy them elsewhere?
Super Micro Computer trades at the same levels as Nvidia
The market is well aware that Supermicro will post phenomenal growth over the next year, so the stock has rapidly increased in response. This valuation spike is impressive but should level out as improved results catch up to investor sentiment.
SMCI PE Ratio data by YCharts
But if it stumbles along the way, Supermicro will likely lose its premium price tag very quickly.
Still, the question remains: Is 34 times forward earnings too expensive of a price tag to pay for Super Micro Computer? One of the other beneficiaries of AI proliferation is Nvidia, which trades at 95 times trailing and 35 times forward earnings.
So, looking at the forward price-to-earnings (P/E) ratio, the two are essentially valued at the same level. For my money, I'd much rather own Nvidia, as Supermicro is dependent on Nvidia to supply its GPUs, not the other way around. Additionally, Nvidia's margin profile is far superior to Super Micro Computer's.
SMCI Gross Profit Margin (Quarterly) data by YCharts
This is not to say that Super Micro Computer is a bad company, but it shouldn't be valued the same as Nvidia, which has a far superior business model.
Supermicro is a great company that will see strong gains, but I'd much rather own Nvidia at its current price tag.
