The past year has been phenomenal for Super Micro Computer (SMCI +3.55%) investors; shares of the server manufacturer have shot up a stunning 1,090% over the past 52 weeks. Investors have been buying Supermicro stock hand over fist thanks to the booming demand for its solutions that are being deployed in artificial intelligence (AI) servers.
Supermicro's impending inclusion in the S&P 500 index has further added to investors' enthusiasm. The stock is now trading at an all-time high of just over $1,161 following eye-popping gains of 309% just in 2024. Given that Supermicro's share price has quadrupled just over the past two months or so, does it mean that it is a matter of time before it jumps another 72% and hits a stock price of $2,000? Let's find out.
NASDAQ: SMCI
Key Data Points
Supermicro's immense growth potential suggests the stock has room to run higher
Though Supermicro (the name its business operates as) has shot up big-time in the past year, it is worth noting that the stock trades at just 5.6 times sales right now. That's surprisingly cheap when you consider that other companies that benefit from AI adoption, such as Nvidia and Palantir Technologies, trade at much higher sales multiples. What's more, Supermicro is currently cheaper than the Nasdaq-100 Technology Sector index's price-to-sales ratio of 8.45.
There is still room for the market to reward Supermicro stock with a higher valuation. That won't be surprising considering the company's accelerating growth. When the company released its second-quarter fiscal 2024 results (for the quarter ending Dec. 31, 2023), it raised its full-year revenue guidance to a range of $14.3 billion to $14.7 billion.
Investors should note that Supermicro originally announced fiscal 2024 revenue guidance of $9.5 billion to $10.5 billion in August last year when it released its fiscal 2023 results. So, the company has increased its full-year revenue guidance by 45% at the midpoint in a space of just two quarters. This also explains why analysts have significantly raised their revenue expectations from Supermicro for fiscal years 2024 and 2025.
SMCI Revenue Estimates for Current Fiscal Year data by YCharts
According to the chart above, Supermicro could generate just over $20 billion in revenue in fiscal 2025, which will begin in July this year and end in June 2025. Assuming it does hit that mark and maintains its current price-to-sales ratio after a year, its market cap could jump to $112 billion. That points toward an 87% jump based on Supermicro's current market cap of $60 billion, which is just what the stock needs to hit a price of $2,000.
In other words, Supermicro stock could hit the $2,000 stock price milestone in the space of just over a year. But don't be surprised to see it deliver even bigger gains as it seems capable of surpassing the $20 billion in annual revenue estimate that analysts have set for it for fiscal 2025.
Stronger production capacity could give its top line a big boost
On its January earnings conference call, Supermicro CEO Charles Liang pointed out that the company is adding new production facilities and warehouses near its headquarters in San Jose, California, which should be up and running in "a few months." The CEO also added that its new facility in Malaysia will help it support an annual revenue capacity that tops $25 billion.
The Malaysian facility is expected to start production in the second half of Supermicro's current fiscal year, which will put it in a position to smash past analysts' expectations in the next fiscal year. The company can do that as its server rack solutions are in strong demand for deploying powerful AI chips from the likes of Nvidia.
More specifically, the company got more than half of its revenue from selling AI-related server solutions in the previous quarter. Supermicro management also provided a hint that AI will continue to be a key growth driver, pointing out on the earnings call that "next-generation AI and CPU platforms continue to drive strong levels of design wins, orders and backlog."
It is also worth noting that Supermicro is working to significantly enhance its production capacity of liquid-cooled servers by June this year. The company seems to be doing the right thing by making this move as Nvidia's upcoming AI graphics cards will reportedly consume 40% more power as compared to the previous generation offerings. This could create a strong demand for liquid-cooled servers and help Supermicro fill out its enhanced production capacity.
All this indicates that Supermicro stock's red-hot momentum is here to stay. Considering its shares aren't all that expensive right now, investors looking to buy an AI stock would do well to buy Supermicro right away as it seems set to breach the $2,000 mark over the next year or so.
Even then, Supermicro stock seems to have room for more upside. The AI server market is expected to generate $177 billion in annual revenue in 2032 as compared to $38 billion last year, according to Global Market Insights, indicating that Super Micro Computer could be at the beginning of a multiyear growth curve.
