Super Micro Computer (SMCI 2.65%), also called Supermicro, provides high-performance servers built to withstand the rigors of artificial intelligence (AI) processing. The company has become a poster child of the AI boom and is scheduled to report the results for its fiscal 2024 third quarter (ended March 31) after the market close on Tuesday. AI investors will be sitting on the edge of their seats, as Supermicro could provide insight into the overall state of demand for AI.
The stock has gained a remarkable 828% since 2023 kicked off and is already up 168% so far this year (as of this writing). Supermicro's servers have provided the computational horsepower necessary to run the massive large language models (LLMs) that underpin generative AI, offering everything from modular components to full rack-scale solutions. Just last month, its stunning performance earned it a spot in the S&P 500 Index, "which tracks the 500 of the most valuable companies" traded on U.S. stock exchanges.
Supermicro has been one of the frontrunners in the AI revolution, but the stock's meteoric rise has investors wondering what's to come. Should investors buy the stock before its third-quarter results are released? Let's dig in to see what the evidence suggests.
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What's in the cards for Supermicro on Tuesday
Demand for Supermicro's AI-focused server solutions has been unprecedented, leaving Wall Street scrambling to keep up with its soaring stock price and the accelerating demand for its products. Helping fuel that demand is Supermicro's partnerships with chip makers, including Nvidia, Advanced Micro Devices, and Intel, among others, giving the company nearly unfettered access to the chips needed for AI processing.
This has helped the company meet much of the demand sparked by generative AI and eclipsing analysts' expectations in the most recent quarter. As a result, Wall Street has been gradually increasing its estimates over the past three months.
For the third quarter, analysts expect revenue to surge 211% to $3.99 billion, with earnings per share (EPS) soaring from $1.61 to $5.84, an increase of 263%. These are high expectations, to be sure, but not undeserved, given Supermicro's recent performance.
For its fiscal second quarter (ended Dec. 31), Supermicro's revenue more than doubled to $3.66 billion and its EPS jumped 65% -- despite heavy capital investment to meet future demand. Furthermore, management's outlook is calling for revenue of $3.9 billion and EPS of $5.22 at the midpoint of its guidance.
This time, however Supermicro has thrown a wrench in the works. In seven of the previous eight quarters, Supermicro issued a press release that provided not only the date of its financial release, but provided preliminary financial results. Last week, the company said it would announce its third-quarter results on Tuesday -- but no preliminary release was forthcoming. There could be any number of reasons for the omission, but investors fear Supermicro's results might be lacking -- and the stock crashed 24% on April 19 on the (lack of) news.
Should you buy Supermicro stock now or wait until after earnings?
For investors looking to own a piece of a company, trying to time the daily machinations of the stock market is a fool's errand. Those with a long investing time horizon would do well to simply buy the stock and hold on for the ride. Why? There's simply no way to know for sure how investors will react and whether the stock will rise or fall following Supermicro's financial report.
There are plenty of reasons to be optimistic over the long term. Supermicro is on the cutting edge of server design and has built strong relationships with chipmakers, assuring the company of a steady supply of AI-centric processors.
Furthermore, Supermicro is stealing share from the competition, according to industry experts. Barclays analyst George Wang posits that "[Supermicro] has 7% market share globally, implying further share gains ahead are likely," Wang said. He believes the company is gaining market share at the expense of larger rivals Dell Technologies and Hewlett Packard Enterprise.
Supermicro has grown at five times the industry average over the past year and is investing heavily in its infrastructure, which will support future growth. The company is expanding its production facilities, which will increase its production capacity to support annual sales of up to $25 billion.
The excitement regarding the adoption of generative AI has attracted plenty of fair-weather investors, increasing the volatility of many of the stocks in the space, and Supermicro certainly isn't immune.
Estimates vary wildly regarding the potential size of the AI market, but one of the more moderate views suggests the generative AI market will be worth between $2.6 trillion and $4.4 trillion, according to global management consulting firm McKinsey & Company.
If the estimated range is even close to reality -- and I believe it is -- the runway ahead is long. Despite its significant run-up, Supermicro stock is currently selling for just 2 times next year's sales, an attractive price given the opportunity.
For those looking beyond next week, Supermicro has all the earmarks of a solid long-term buy -- even ahead of the company's highly anticipated earnings and no matter what happens after the report.
