Super Micro Computer (SMCI 8.89%) isn't new to the world of technology. This company that sells servers, storage systems, full rack scale solutions, and more celebrated its 30th anniversary last year, and it's progressively increased earnings over time. But the emergence of artificial intelligence (AI) demand has pushed this steady player into high-growth mode.
Customers developing AI programs have rushed to Supermicro for its solutions, powered with the fastest AI chips and featuring Supermicro's liquid cooling system -- particularly useful for AI projects, which are known to generate heat. The company's earnings have soared, and so has its stock price, climbing more than 5,700% over the past five years. In fact, if you'd invested $20,000 in the stock before that tremendous gain you would be a millionaire now.
And the good news is this stock, which has created millionaires, is likely to continue to make more. Let's find out why.
Image source: Getty Images.
A $1.3 trillion market
First, it's important to note that the AI market is set to grow considerably in the coming years, meaning companies that are essential to this growth probably will benefit. The global AI market may reach more than $1.3 trillion by 2030, according to Markets and Markets.
Supermicro, as mentioned above, provides a wide range of systems needed by companies developing AI projects. The company's plug-and-play systems appeal to customers because they arrive ready for use -- and prior to the creation of the particular system, Supermicro offers customers a selection of models and configurations. So, customers may order a platform fully customized to suit their needs.
The technology company also uses a building block architecture with common elements that can be used across products, which helps it rapidly build compute platforms. This comes in handy when new technologies are released into the market, and Supermicro must include those particular technologies in its products. On top of this, Supermicro collaborates with leading chipmakers such as Nvidia and Advanced Micro Devices so that it knows just when a new chip is coming -- and can prepare for it.
All of this has resulted in a speed to market that customers appreciate, and the company says demand for its AI systems at rack scale continues at record levels. This also has translated into explosive growth, with Supermicro growing five times faster than its industry over the past 12 months. Revenue in the most recent quarter climbed more than 100% to $3.6 billion, and the company forecasts revenue of more than $14 billion for the fiscal year, representing a 100% increase.
Chief executive officer Charles Liang wrote in a letter to shareholders last year that he expects the target of $20 billion in annual revenue to be "just a few years away."
Meanwhile, the company has been profitable for years and should gain in profitability thanks to growing AI demand as well as its own economies of scale -- for example, it's opening a high-volume production site in Malaysia this year.
Are Supermicro shares expensive?
Supermicro shares have surged in recent years, leaving them trading for 51 times forward earnings estimates. That may seem pricey, but it actually isn't expensive if you take a long-term view. The earnings estimates used in the forward P/E calculation are for the coming year, so they are rather short term. If we consider the AI market growth forecast and Supermicro's strategy and leadership in its market, the company's long-term growth potential looks strong, and the shares today seem reasonably priced.
Of course, even though Supermicro looks like a very promising stock, it's not often that investment in one stock alone makes a person a millionaire -- and it's highly risky to bet the farm on just one player. Even the strongest of companies can go through a rough patch, and that could seriously hurt you if you've invested only in that particular player.
So, to build your potential path to millions, pave the way with a portfolio of quality stocks and hold on for the long term. And as part of this strategy, Supermicro could help make you and many other investors millionaires.
