Super Micro Computer (SMCI +5.13%) has been around for more than 30 years, but just recently this company has taken center stage -- and delivered many "firsts," such as its first $2 billion quarter. Earnings have been on the rise thanks to this company's behind-the-scenes but crucial role in the world of artificial intelligence (AI). Supermicro provides complete information technology (IT) solutions for customers working in the space -- including servers, storage systems, and more.
And just days ago, Supermicro scored a big win. It was chosen to join the S&P 500 index -- news that drove the stock price to an 18% gain in just one session. That's after already soaring more than 2,000% over the past two years.
Now, you may be wondering if it's time to buy Supermicro as it's confirmed as being part of the elite group of companies powering today's economy -- or if the recent spectacular gains have made this top tech stock too pricey. Let's find out.
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AI supercharges Supermicro's earnings
First, let's talk more about Supermicro's recent business successes and future prospects. The company has progressively grown earnings over time, showing that even prior to the AI boom, this player steadily attracted customers and built its reputation as a quality provider of IT solutions. But earnings clearly took off as companies started to invest more in AI and opted for full-rack solutions to support their projects.
SMCI Revenue (Annual) data by YCharts
Supermicro's systems integrate servers, networking, storage, and other elements, and the company optimizes, tests, and validates these platforms -- all of this equals efficiency and ease of use for the customer. The products also include Supermicro's liquid-cooling technology, a plus for AI workloads that create a lot of heat.
Customers also like the fact that Supermicro customizes these systems, meaning each platform perfectly matches the particular customer's needs.
On top of this, Supermicro has speedily brought its products to market, and they always accommodate the latest technology from chip giants such as Nvidia and Advanced Micro Devices. How does Supermicro manage this? The company works hand-in-hand with these companies, monitoring their product developments and launch dates so that it can offer their latest innovations in Supermicro's own platforms. This has resulted in booming demand for Supermicro.
To keep up with demand, the company says it's adding two new production facilities close to its Silicon Valley headquarters and a new facility in Malaysia that will focus on lowering costs and increasing volume.
Supermicro says it's on track to double its AI portfolio in the coming months, integrating new releases from chipmakers such as Nvidia's H200 graphics processing unit (GPU).
A doubling of sales year over year
All this has prompted Supermicro to forecast fiscal full-year revenue of at least $14.3 billion, which would represent a doubling of sales from the prior year's level. So, it's clear business is looking good for Supermicro, and if predictions of the AI market reaching more than $1 trillion by the end of the decade are right, this momentum could continue. The company's close work with chipmakers is a wise move, allowing it to offer customers a complete package with the latest innovations.
Now let's consider the entry into the S&P 500 and why this represents good news for a company. First, it's a bit symbolic, showing the company is a key player in today's economy and generally is delivering profits -- this could encourage a broader range of investors to buy the stock. Cautious investors, for example, may feel more comfortable choosing a tech company that's met the S&P 500 membership criteria.
Second, managers overseeing funds that track the S&P 500 will have to buy shares of Supermicro so that their funds will accurately reflect the index's composition. This means we could see some positive momentum as these investors pick up shares of the tech company -- and these investors will hold on to the shares, so they represent a source of stability.
NASDAQ: SMCI
Key Data Points
Is Supermicro too expensive now?
Let's get back to our question: Is now a good time to buy Supermicro? It's true the stock has soared in recent times, and as a result, it now trades for 50x forward earnings estimates -- up from as low as 15 earlier this year.
That may look expensive, but it's important to consider the company's long-term potential. Analysts expect double-digit growth annually over the coming five years, and Supermicro's collaboration with chip leaders and trends in demand seem promising. As mentioned, the AI market is set to soar in the coming years -- this could drive more earnings gains at Supermicro.
All of this means that today, in spite of the recent run-up in the stock price, Supermicro still looks like a solid buy for the long-term investor, offering a great way to bet on the AI revolution.
