The good times keep rolling for Super Micro Computer (SMCI 8.89%). The technology company's seen its shares soar by quadruple-digit percentages over the past five years, and demand continues to climb for its servers, workstations, full rack-scale solutions, and other products.
The surge in demand for artificial intelligence (AI) tools has helped this 30-year-old tech company shift from steady to explosive growth. Recently, Supermicro reached a number of "firsts," including its first $3 billion quarter. That's more than its full-year revenue just three years ago. The company forecasts revenue will soar about 100% in this fiscal year to more than $14 billion -- and this trend may be far from over.
To add to this already bright picture, Supermicro was recently selected to join the S&P 500, and the stock will officially enter this index of market-leading companies on March 18. Now the question is: Should you get in on the shares before that big moment?
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Supermicro in the limelight
First, let's talk a little about why Supermicro has been so successful in recent times. As mentioned, the company offers servers and related equipment used by a broad range of companies, including those focused on AI. A few elements set Supermicro apart and have helped it to jump into the limelight -- elements that are crucial to customers like ease of use, customization, and speed to market.
Supermicro builds, optimizes, and validates its systems, doing everything so that when they're delivered to customers, they're ready for use. And well before this stage, the company offers each customer a choice of features and configurations to tailor the particular product to that customer's needs.
Finally, two things are helping Supermicro rapidly bring its systems to market. The company's building-block technology allows for the use of common elements across products, streamlining the building process. And Supermicro works closely with the world's biggest chip designers, like Nvidia and Advanced Micro Devices, so it can follow developments and quickly integrate their latest innovations into its platforms.
All of this has helped Supermicro deliver a growth rate that's been five times faster than its industry over the past year. And the company's addition of new facilities, including one in Malaysia that focuses on lower costs and higher volume, should support a revenue capacity of more than $25 billion, said CEO Charles Liang on the recent earnings call.
The company is on track to double the size of its AI portfolio in the coming months with the launch of innovations such as Nvidia's H200 graphics processing units (GPUs).
Supermicro's growing valuation
Supermicro now trades at 53 times forward earnings estimates, up from as low as 15 earlier this year. So you may think the stock has become pretty expensive -- but that isn't necessarily the case if you consider the long-term AI opportunity.
It's important to remember that this valuation measure takes into account next year's earnings estimates, but doesn't include earnings potential farther down the road. So Supermicro still makes a great buy today, thanks to its long-term prospects and the idea that AI demand might just be getting started. The AI market may reach more than $1 trillion by the end of the decade, according to some forecasts.
OK, so if Supermicro is still reasonably priced...should you rush out to buy the stock before its official S&P 500 entry? After all, it may climb even higher following its inclusion: Funds tracking the S&P 500 automatically buy new members of the index so they continue to reflect the index's composition. And a broader range of market participants, including cautious investors, might gain confidence in Supermicro now that the index has given it the nod. This could result in some buying activity and lift the stock.
Even if the stock rises, though, this movement won't change your returns much if you invest over the long term. And holding on to stocks for the long term is the way to benefit the most from your investment, because it allows you to take part in a company's development, and possibly that company's multiple successes over the years. By "long term" I mean owning a particular stock for at least five years, but if the investment case remains strong, you'll often win by holding on for a decade or more.
All of this means Supermicro is a great stock to buy now thanks to its smart strategy and AI growth prospects. But it also should be a top stock to buy on March 18, and well beyond.
