Amid the growing interest in artificial intelligence (AI) companies, one surprise is arguably Super Micro Computer (SMCI +8.72%). The company existed since 1993, but investor interest did not take off until its AI servers got the attention of investors.
Now, a partnership with Nvidia seems to have supercharged the stock. So strong is its performance that the tech stock has risen by about 310% since the beginning of the year. Many investors are likely disappointed for having missed that increase, but does the recent growth make it too late to buy? Let's take a closer look.
NASDAQ: SMCI
Key Data Points
What is Super Micro?
Super Micro is a rack-scale IT solutions provider. It stands out by producing servers, switches, storage systems, and software that use less energy and are friendly to the environment. In its more than 30 years in business, it has become a top server vendor, acquiring over 6 million square feet of manufacturing space and establishing operations in over 100 countries.
However, it is the server company's partnership with Nvidia that captured the interest of investors. Super Micro offers a broad selection of Nvidia-certified systems. These run some of the largest AI training models and are optimized to run AI workloads.
Such capabilities inspired the aforementioned 310% gain for 2024, but the increase in the stock began in earnest in the spring of last year, as the Chat GPT release from OpenAI sparked new interest in the field. As a result, the stock is up over 1,000% in the last 12 months.
Is the stock price justified?
Admittedly, solid growth in Super Micro's financials backs up investor optimism. In the first two quarters of fiscal 2024 (ended Dec. 31, 2023), it earned $5.8 billion in net sales, a 58% increase compared with the same period last year.
Unfortunately for Super Micro, its operating expenses rose nearly as fast as revenue, and its cost of sales surged by 64%. Thus, its $453 million net income for the first six months of fiscal 2024 increased by only 25%.
Despite that setback, the improvements appear on track to continue. For fiscal 2024, the company anticipates revenue between $14.3 billion and $14.7 billion. At the midpoint, this would mean a 104% yearly increase in revenue.
Additionally, the valuation may not appear as crazy as some might fear with a 1,000% yearly increase in the stock price. The price-to-earnings (P/E) ratio is 83, and the forward P/E ratio comes in at 49 under current forecasts. Considering that many AI stocks trade at higher multiples, such valuations may not discourage investors, especially when also considering its price-to-sales (P/S) ratio of 7.
Is it too late to buy Super Micro stock?
Given its performance and financials, it is probably not too late to buy, though buyers should exercise caution. Shareholders continue to benefit from rapid growth due to the surging demand for AI servers. Also, Super Micro's valuation metrics compare favorably to other AI stocks, which may have driven much of the buying.
Nonetheless, at current levels, bad news, or even good news that is less positive, could hurt the stock. That situation calls for caution, and investors who buy should probably add shares slowly or hold out for lower prices.
Ultimately, Super Micro is one of the major beneficiaries in this surge in AI-driven demand. Should the stock experience a significant pullback, investors should feel confident buying it more aggressively.
