The artificial intelligence (AI) boom has helped a more than 30-year-old company soar to center stage in recent times. Super Micro Computer (SMCI +8.19%) steadily grew its earnings over the years thanks to sales of equipment like servers and workstations. But sales and profitability truly took off over the past few years thanks to demand from customers building out AI platforms -- and this has helped the stock price take off too. Super Micro shares have advanced more than 3,500% over the past five years.
Analysts forecast major growth for the AI market throughout the decade, and if they're right, this top equipment company is set to benefit. In the most recent earnings report, Super Micro reported record demand for its full rack scale solutions. All of this offers us reason to be optimistic about what the company will say during the next report, scheduled for Aug. 6.
At the same time, if Super Micro disappoints in any way, this could weigh on the shares, which already have slipped 40% from their high earlier this year. Considering all of this, should you buy Super Micro shares before Aug. 6 -- or wait? Let's find out.
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The secret to Super Micro's success
First, a bit about why Super Micro has been so successful over the past few years. Customers building out AI platforms require certain equipment like servers and full rack scale solutions. Super Micro and others sell this sort of equipment, but Super Micro has managed to deliver a growth rate that's five times faster than the industry average over the past 12 months. This is due to the company's ability to quickly customize products according to the needs of its customers.
Super Micro does this thanks to its "building blocks" method -- its products share many common parts so it's quick and easy to assemble and customize them. Also, the company works closely with top chip designers like Nvidia, following their product development timetables -- this way, when a new chip is available, Super Micro can immediately integrate it into its equipment.
The company also aims to keep its costs down and productivity up and has recently opened a new facility in Malaysia that will support the effort.
All of this helped Super Micro report triple-digit increases in sales and net income in the most recent quarter. And, as mentioned, this trend could continue thanks to the general growth in the AI market and the fact that Super Micro has been reporting record demand for its products.
What to expect on Aug. 6
On Aug. 6, Super Micro will report fiscal 2024 fourth-quarter and full-year earnings. The stock could advance after the report if the company beats analysts' estimates or announces a stock split -- since the shares trade for around $700, investors have speculated the company would join other stock market giants that have recently split their stocks after reaching high levels. A stock split lowers the per-share price, making the stock more accessible to a broader range of investors -- but it doesn't change the market value or valuation of the particular company.
Both Nvidia and Broadcom completed such operations a few weeks ago. I predicted in an earlier story that Super Micro soon would make the move, and I still think it's a strong possibility. That said, if Super Micro reports earnings growth, but it doesn't meet expectations and the company doesn't announce a split, the stock may suffer after the upcoming report.
NASDAQ: SMCI
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A long-term view
So, what should you do? Is Super Micro a buy before its next earnings report, or should you wait to make a move? It probably doesn't matter, and here's why. Super Micro's potential gains or losses in the trading session following its earnings report won't impact your long-term returns by much. So, as a long-term investor, you don't have to worry about buying a stock at its very lowest point or on a particular dip. Instead, focus on valuation, and if it looks good and you're confident about the company's long-term prospects, the stock is worth adding to your portfolio.
Today, Super Micro trades for 20 times forward earnings estimates -- dirt cheap considering the company's growth so far and the likelihood of more to come. I wouldn't expect the stock to shift from a bargain valuation to an out-of-sight one in just a couple of weeks. So, whether you scoop the stock up right now or after the Aug. 6 earnings report, you may score a win over the long haul.
