Nvidia has been a tough act to follow in recent years. The artificial intelligence (AI) chip giant has delivered triple-digit increases in earnings quarter after quarter, and the share price has followed. Nvidia stock has soared more than 2,400% over the past five years, and considering the company's focus on innovation, this stellar performance may continue.
Though Nvidia has garnered the greatest share of investor attention in recent times, another tech player actually outperformed this AI powerhouse in the first half of the year. And this company followed in Nvidia's footsteps recently by announcing a stock split, a move to bring a high-flying share price down to earth -- and make the stock more accessible for a broader range of investors.
Now, Wall Street predicts this player's gains may be far from over. Let's meet the new stock-split stock that analysts think could nearly double within the coming 12 months...
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A triple-digit first-half gain
And this stock is Super Micro Computer (SMCI 33.18%), a company that saw its stock price soar 188% in the first half, surpassing Nvidia's 149% increase. Though individual forecasts vary, the average Wall Street estimate calls for the stock to climb 90% from today's level.
It's important to note that this once high-flying stock has been wading through difficult waters in recent weeks. A short report released by Hindenburg Research, alleging troubles at the company, has weighed on the shares. In an unrelated move, Supermicro delayed the filing of its 10-K annual report, and this has represented an additional headwind.
I see these as short-term pressures, but they don't change Supermicro's long-term story. And considering the 20% decline in the stock since the short report, it looks dirt cheap right now -- it trades for only 13 times forward earnings estimates, down from more than 45 times earlier in the year.
NASDAQ: SMCI
Key Data Points
In recent days, some analysts have highlighted the potential of Supermicro. For example, Needham rated Supermicro a buy in new coverage of the stock -- and Needham expects a gain of 37% in the months to come.
Why should we be so optimistic about Supermicro? First, the company has proven its ability to dominate in the area of full rack scale solutions for data centers. Supermicro's servers and other products share many common parts so the company can more quickly build a particular item to suit a customer's needs. The equipment maker also works very closely with all of the top chipmakers -- including Nvidia -- so that it can immediately include their innovations in its products. This has helped revenue in one single quarter surpass annual revenue as recently as 2021.
Supermicro's big opportunity
Second, Supermicro now faces a major opportunity that could launch a whole new wave of lasting growth for the company. One of the biggest problems facing the data centers of today and tomorrow is the fact that AI workloads produce excessive heat. Supermicro's direct liquid cooling (DLC) technology, once a slow-growth business, now promises to offer explosive growth.
The company predicts that within the coming 12 months, 25% to 30% of data centers will be equipped with DLC, and Supermicro will dominate this market. At the same time, Supermicro is preparing for demand for DLC and its equipment in general as it brings online its Malaysia facility -- one that will focus on volume and speed.
Considering forecasts of an AI market to reach $1 trillion by the end of the decade, and the key role of data centers in all of this, Supermicro's revenue could continue to climb for quite some time.
As for the stock split, Supermicro will trade at its new split-adjusted price as of Oct. 1. This won't change anything fundamental about the company or stock -- valuation and market value remain the same. So, it won't act as a catalyst for share performance, but it is a positive move as it will make it easier for more investors to buy the stock over time.
All of this represents a lot of positive points for Supermicro, setting the stage for major growth potential -- and making it a fantastic stock to buy on the dip.
