In just the last three months, shares of Dell Technologies (DELL +1.26%) have surged 75% as the market recognizes the momentum in server demand. It's a bullish signal for the rest of the artificial intelligence (AI) supply chain.
Dell's rise could be a good omen for other data center suppliers that haven't yet broken new highs. For investors looking at other stocks that the market hasn't yet recognized, here's why I think Super Micro Computer (SMCI +2.17%) and Iren (Iris Energy) (IREN +6.47%) could be ripe for a breakout.
Image source: The Motley Fool.
Super Micro Computer
Super Micro Computer competes with Dell, but the strong demand for AI-optimized servers means both can succeed. And this is evident in Super Micro's monster growth over the past few years.
It designs some of the most advanced servers and storage systems for AI data centers. Trailing-12-month revenue has roughly tripled over the past three years to over $28 billion. The recent quarter showed a 123% year-over-year increase in quarterly revenue.
Growth in Super Micro's Data Center Building Block Solution (DCBBS) is a catalyst for the stock. DCBBS contributes just 4% to the company's profit, but management expects this contribution to at least double over the next two quarters. This sets up the potential for a higher stock price.
NASDAQ: SMCI
Key Data Points
Of course, there are risks. One customer accounted for about 63% of the company's revenue last quarter. The customer was undisclosed, but it's likely a large hyperscaler. Management wants to improve the customer diversity, but for now, this makes Super Micro vulnerable to spending cuts or to competition elbowing it out of new business.
Still, the demand for DCBBS and the potential for higher margins are clearly catalysts for the stock. The share price has been consolidating over the past year, and it might just take one or two strong quarters to send it higher.
Iren
New data centers are in limited supply due to long construction lead times. Iren is making a convincing transition from Bitcoin miner to a vertically integrated AI cloud and data center provider.
The advantage for Iren starts with its co-founders and co-CEOs, Daniel and Will Roberts. They have executed on a vision over the past seven years to assemble land, power, and in-house construction capabilities to build data centers as quickly as possible.
The company just secured a new 1.6-gigawatt data center site in Oklahoma, bringing its total power-secured pipeline to over 4.5 gigawatts. It has other data centers in development across Texas and British Columbia and potentially Australia (Iren's home base), where it has job openings for engineers in Sydney.
NASDAQ: IREN
Key Data Points
Iren's strategy is gaining credibility with investors. It just addressed the main skepticism -- financing the cost of purchasing thousands of graphics processing units (GPUs). It received $3.6 billion in GPU financing at an interest rate under 6%. It also has prepayments from its recent deal with Microsoft, which fund 95% of the GPU expenses. This reflects lender confidence and management's goal of keeping costs down and creating value for shareholders.
Management is targeting $3.4 billion in annual revenue by the end of 2026. Another hyperscaler deal may be imminent. "We have multiple advanced negotiations underway for larger-scale deployments," Daniel Roberts said in February. Another announcement would likely send the stock higher.
