There are many ways to play the AI investment trend. Hardware companies like Nvidia (NASDAQ: NVDA) are powering the training of AI models, suppliers like Taiwan Semiconductor (NYSE: TSM) are building the chips for Nvidia, and software companies like Palantir (NASDAQ: PLTR) are providing platforms to deploy AI for real-world use. I tend to prefer neutral options in the AI space. That way, I can benefit from the general buildout of AI rather than having one company succeed.
While Nvidia is an excellent choice in this realm, so is Super Micro Computer (SMCI 2.05%). Super Micro Computer, often called Supermicro, builds server racks and cooling solutions for data centers to house high-powered computing devices like Nvidia's GPUs. Supermicro has seen impressive growth over the past few years, but what's ahead could make investors even more money.
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Supermicro's servers offer some advantages over competitors
Server racks are fairly commoditized, so there isn't much to separate one competitor from another. However, one area where a company can make a name for itself is customizability and cooling technology. Supermicro's racks are highly modular, allowing clients of all sizes to find a server rack that fits their workload size and application.
Another advantage of Supermicro's solutions is its direct liquid-cooling (DLC) technology. Traditionally, computing hardware is cooled by moving air across the unit, which isn't the most efficient way to cool these units. Supermicro's DLC technology moves liquid across the surface (contained in tubes), which is a far more efficient way to cool them. Furthermore, because these units don't have to account for airflow, Supermicro's clients can pack more server racks into a given space, which helps decrease building costs. Supermicro estimates that this provides up to 40% energy savings and 80% space savings.
Supermicro also has key partnerships in the industry, most notably with Nvidia. Nvidia's most powerful chip, based on Blackwell architecture, can be placed in servers purpose-built to hold those exact GPUs, helping users squeeze out every last bit of performance from these chips.
Supermicro's latest results weren't the company's best
In Supermicro's third quarter of fiscal year 2025 (ended March 31), sales rose 19% year over year to $4.6 billion. While that's solid growth, the company faces some headwinds due to tariffs. Supermicro also faces some headwinds moving into next quarter, with revenue expected to be about $6 billion at the midpoint of guidance, indicating 13% growth.
However, one area where Supermicro shines is its valuation, as shares can be scooped up for a dirt-cheap level. Supermicro's stock trades for just 15.2 times fiscal year 2026's earnings, which is far cheaper than most of the AI stocks in the market, which commonly trade in the high-20s to the low-30s range.
SMCI PE Ratio (Forward 1y) data by YCharts
As Supermicro figures out tariffs and shifts supply chains around, it could see its growth start to reaccelerate, as AI demand is still massive. Nvidia forecast, using third-party data, that data center capital expenditures would reach $400 billion in 2024 but could rise to $1 trillion by 2028. Should this occur, Supermicro will see its business rapidly expand due to the field in which it's playing.
That kind of growth could send Supermicro's stock soaring if it can capture the bulk of server infrastructure, making Supermicro a potentially fantastic buy to capitalize on the AI arms race that's still heating up.
