Shares of Super Micro Computer (SMCI 5.04%) -- aka Supermicro -- have been red-hot in recent years. The company would have turned an investment of just $100 made three years ago into more than $2,300 as of this writing -- though it is worth noting that a big chunk of those gains arrived in the past year and a half, after it became clear how the artificial intelligence (AI) boom would drive robust growth in its top and bottom lines.
More specifically, a $100 investment in Super Micro Computer made at the beginning of January 2023 would now be worth $950. That's despite a drop in the company's stock price of late. Shares of Supermicro are down by 34% from the 52-week high that it hit on March 8. However, this pullback has provided a solid opportunity for investors looking to add an AI stock to their portfolios, as Supermicro seems primed to deliver robust gains over the next three years.
NASDAQ: SMCI
Key Data Points
Super Micro Computer's growth should continue
In Super Micro Computer's fiscal 2024 third quarter (which ended March 31), its revenue jumped a stunning 200% year over year, as the demand for the company's servers remained robust. What's more, the company's non-GAAP earnings shot up 308% to $6.65 per share.
Management pointed out that its product development moves and healthy demand for its server solutions are helping the company "expand our market leadership in AI infrastructure." The fact that Supermicro's revenue is growing at a much faster pace than the AI server market adds credibility to those claims.
According to market research firm TrendForce, the global AI server market could grow by 40% this year. Supermicro's fiscal 2024 guidance for revenues of $14.9 billion, meanwhile, equates to growth of just under 110%. Even better, analysts have significantly raised their revenue expectations from Supermicro following its latest results.
SMCI Revenue Estimates for Current Fiscal Year data by YCharts.
It is easy to understand why analysts have bumped up their expectations for Supermicro. The company's supply chain is improving, and it is winning new customers for its server solutions, especially its liquid-cooled servers. Management points out that its liquid-cooled servers can help customers reduce energy expenses by 40%, and they are witnessing healthy demand thanks to the increasing power consumption of new AI graphics cards.
According to a forecast by analysts at Research and Markets, sales of liquid-cooled servers could increase from $4.45 billion in 2023 to almost $40 billion in 2033. So, Super Micro Computer has a huge secular growth opportunity. Moreover, the market for AI servers is expected to generate $150 billion in revenue in 2027 as compared to $30 billion last year.
With Supermicro growing at a much faster pace than this end market, it won't be surprising to see its top line head higher over the next three years. That could lead to an impressive rise in its stock price.
A bright outlook for the stock
Based on analysts' forecasts, Supermicro's revenue could jump to $28.2 billion in its fiscal 2026. It generated $7.1 billion in revenue in fiscal 2023, so hitting that projection would require a compound annual revenue growth rate of 58%. Assuming it increases its revenue at a more conservative rate of 20% in its fiscal 2027 (which will end in June 2027), its top line could hit $34 billion after three years.
Multiplying the projected revenue in fiscal 2027 with the S&P 500 index's average price-to-sales ratio of 2.8 gives Supermicro a projected market cap of $95 billion in three years. That would be just over double its current market cap. What's more, Supermicro is currently trading at just under 4 times sales, so it is not that expensive.
Hence, investors who have missed out on the terrific gains that this AI stock has delivered so far can still consider buying it, since it could jump significantly over the next three years.
