Is It Too Late to Buy Super Micro Computer Stock? | The Motley Fool

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Super Micro Computer (SMCI -0.66%) might not be a household name, but the computing hardware stock has been one of the biggest winners thus far in the artificial intelligence (AI) boom.

Since the start of 2023, the stock is up a whopping 528%. Much like Nvidia, the AI chip superstar that skyrocketed on surging demand for its chips and accelerators that work especially well for running AI models, Super Micro Computer finds itself in a similarly fortuitous position. Sales are surging as its high-density servers and storage equipment are well suited for running the kind of intense AI models that power apps like ChatGPT.

But after its dramatic run-up, is it too late to buy Super Micro Computer, or Supermicro as it’s often known? Let’s take a look at what the stock has to offer today to see if there’s more upside to Supermicro.

Super Micro provides accelerated computing platforms that include high-performance, high-efficiency server and storage systems for markets such as enterprise data centers, cloud computing, and AI.

For AI infrastructure, Super Micro provides a variety of GPU-optimized systems. Super Micro works closely with Nvidia, offering a range of its GPUs and accelerators inside its servers.

The company uses technologies like liquid cooling, which helps improve the efficiency and performance of the hardware and gives it a competitive advantage in providing full-rack solutions for data centers and AI systems.

Supermicro’s second-quarter report makes it clear that demand for its products isn’t slowing down. Revenue in the quarter ended Dec. 31, 2023, jumped 103% to $3.66 billion, and it raised its full-year revenue guidance to $14.3 billion-$14.7 billion, or 104% at the midpoint, which was up from an earlier range of $10 billion-$11 billion. Profits also soared, though its margins narrowed, with gross margin falling from 18.7% in the quarter a year ago to 15.4%. Adjusted earnings per share jumped 71% to $5.59.

On the earnings call, management said the company was focused on gaining market share. In other words, while it’s growing rapidly, the company believes that competing on pricing is the right move strategically so it can gain new customers and sell them more products.

Management also shared that demand is still stronger than supply, meaning its order backlog is growing, though the company said supply is improving. CFO David Weigand also explained that the company’s guidance was conservative because of the supply constraints it’s facing, implying that results could be better than its forecast.

The company’s recent results and the comments from the earnings call show that demand continues to outstrip supply, meaning that revenue could be growing even faster if there weren’t a shortage of GPUs and accelerators. Similarly, management’s comments about gross margins imply that those should widen as the market normalizes and the company pulls back on price competitiveness.

The AI boom sparked by the launch of ChatGPT still appears to be very much in its early stages, meaning investors should expect to see strong demand for the hardware necessary to power these new AI models continue.

Supermicro’s valuation also looks attractive, especially considering the company’s surging growth rate. The stock currently trades at a trailing price-to-earnings ratio of 36, which gives the stock plenty of room to move higher if it can continue to post strong growth.

Given the recent results from Nvidia and the shortage of its chips, it’s clear that there’s still substantial pent-up demand for AI hardware, and Supermicro is likely to benefit.

While any stock that’s jumped 500% in a year comes with risk, those gains seem justified, given the recent results. Supermicro still has room to run higher, especially as it could easily top the guidance it just proved.

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