Super Micro Computer Announces Stock Split: Investor Implications and Market Outlook

Super Micro Computer Announced a Stock Split. But There's an Even Better Reason to Buy Right Now. | The Motley Fool

Stock splits have been fairly common among companies associated with artificial intelligence (AI). This is because they have performed so well over the past year-and-a-half that their stock prices have reached a level where a split is a good idea. One company that has recently joined this club is Super Micro Computer (SMCI 1.39%), commonly known as Supermicro. It announced a 10-for-1 stock split effective Oct. 1, which will take its stock price from around $630 to $63 per share. While the stock split is exciting news, I think there is an even better reason to buy the stock now before the split occurs. While Nvidia may get all the headlines because it is associated with the AI infrastructure being built out, many more companies are benefiting from the same tailwinds. Supermicro is one of them as its products, ranging from data center hardware to complete racks, are in high demand. While many companies provide similar products to Supermicro's, they stand out among the competition for two reasons. One, Supermicro's servers are highly configurable and can be tailored to suit a workload of any size. Two, Supermicro's servers are more energy-efficient than the competition, which is a huge consideration because energy input costs are significant over the life of the server. These advantages have caused Supermicro's revenue to explode over the past year, and more growth is slated to occur as well. Looking ahead to its fiscal 2025's first quarter (ending Sept. 30), management expects $6 billion to $7 billion in revenue, ranging from 183% to 230% growth. For fiscal 2025, it anticipates $26 billion to $30 billion in revenue, which would be 74% to 101% year-over-year growth. That is significant progress and a huge reason to invest in the stock right now. At the end of fiscal 2023, Supermicro had a long-term annual revenue goal of $20 billion. And at the end of fiscal 2023's second quarter, this target was only $10 billion. Clearly, this market is rapidly expanding, and the appetite for Supermicro's products is growing alongside it. However, this target has once again been raised in its most recent results to an astonishing figure of $50 billion in annual revenue. That's a massive upside from its current projections, and I think it is a phenomenal reason to own the stock, as Supermicro has consistently reached its long-term targets. However, following its Q4 2024 earnings announcement, the stock plunged 20%. This seems like an odd reaction, but that's because another important metric saw some weakness. While revenue growth is important and grabs headlines, investors must also see growing profits. Supermicro's margins plunged in Q4 due to new product launches, and that weakness is expected to last for most of fiscal 2025. However, this drop is short-sighted thinking because if Supermicro recovers its margins by the end of fiscal 2025, it will represent a massive value opportunity. Right now, the stock trades at 18.4 times forward earnings. Compared to most stocks in the market, this figure is pretty cheap. It also indicates 72% earnings growth over the next year. Supermicro's management has already projected 74% revenue growth on the low side, so its earnings would have to stay at this lower state for the entire year for the current valuation to make sense. This disconnect represents a strong buying opportunity for the stock, and a patient investor could see a satisfying return from an investment if Supermicro's margins recover over the next year.

Should You Buy Super Micro Computer Before the Stock Split? | The Motley Fool

Even after the pullback in recent months, Supermicro, as the company is also known, is still up nearly 700% from the start of 2023, nearly matching Nvidia as the chart below shows. The company, which makes high-density servers that are particularly well suited to running AI applications, has accomplished that by putting up Nvidia-like growth numbers with revenue jumping 144% in its recently reported fiscal-fourth quarter. In response to the stock surge, Supermicro recently decided to reward investors with a 10-for-1 stock split, which goes into effect on Oct. 1. The company said it was splitting the stock to make it more accessible. Should you buy Super Micro Computer before the stock split? Let's take a look at the evidence. There's no question that Supermicro is experiencing surging growth, but there's been a blemish on the company's record, and it's one reason the stock tumbled after the recent earnings report. Gross margin has been falling even as revenue has surged. In the fourth quarter, the company reported a gross margin of just 11.2%, down from 17% in the quarter a year ago. That translated into lower operating margins for Supermicro as well, falling to 6.5% from 10.3%. The good news is that the company expects gross margin to recover, saying that supply chain bottlenecks have driven up prices for new components, but that should recede over the next year. Management also said that long-term gross margins will benefit from lower manufacturing costs in production in Malaysia and Taiwan. It also plans to expand in the Americas and in Europe. If margins recover next year, the stock should move higher. Investors should understand that a stock split doesn't do anything to change the fundamental value of a stock; it just divides the proverbial pie into more pieces, making individual shares cheaper. There's also some evidence that stocks have outperformed the S&P 500 in the 12 months following their stock splits, according to research from Bank of America, which found that stocks that split gain 25% on average compared to just a 9% gain for the S&P 500. That could be because stock splits tend to follow strong momentum in the share price and result in part from management's confidence in the business. However, at least some evidence seems to contradict those findings. Nvidia, for example, the stock leading the AI boom and a close partner of Supermicro, issued a 10-for-1 stock split on June 7. Since then, the stock is up just 1.5%, slightly behind the S&P 500's 3.5%. Chipotle stock peaked just before its 50-for-1 stock split on June 26 and has since fallen 21%. Celsius Holdings, the energy drink maker, is down 20% since its 3-for-1 split last November, and Broadcom, the networking chip specialist, is down 3% since its July 15 10-for-1 split, compared to a 0.5% dip for the S&P 500 during that same timeframe. Clearly, a stock split isn't a guarantee of outperformance even if stock splits have outperformed historically on average. Whether you're an AI stock investor or a stock-split investor, the good news is that Supermicro's pullback creates an attractive opportunity to buy the stock as it's down nearly 50% from its peak in March when it was admitted to the S&P 500. Super Micro Computer now trades at a price-to-earnings ratio (P/E) of 31, which looks like a bargain for a stock that still has a ton of growth potential and expects to see margins expand over the coming years. Supermicro has a number of competitive advantages that should help it continue to thrive in the AI server market, including a close relationship with Nvidia and expertise with high-density servers. Plus, the company is a leader in direct liquid cooling (DLC), a key technology for optimizing hardware performance. CEO Charles Liang recently said, "We are targeting 25% to 30% of the new global datacenter deployments to use DLC solutions in the next 12 months, with most deployments coming from Super Micro." The stock split alone isn't a good reason to buy the stock, but with Supermicro's strong growth prospects, attractive valuation, and larger, long-term opportunity in AI, buying before the stock split looks like a brilliant move.

3 Stock-Split Stocks to Buy Before They Soar as Much as 148%, According to Select Wall Street Analysts | The Motley Fool

Data shows that stock-split stocks tend to continue their track record of outperformance. One of the more interesting developments in the investing space over the past several years is the reemergence of stock splits. The once-common practice had diminished in popularity but has experienced a renaissance in recent years. Companies will generally take this path after years of strong results make the stock price less accessible to everyday investors. A stock split creates more shares trading at a lower price; it doesn't change a company's market cap. Newton's first law of motion states that an object in motion tends to stay in motion unless acted upon by an outside force. That same principle could easily be applied to investing in successful companies. Those that enact stock splits see share price increases of 25%, on average, in the year following the announcement, compared with 12% gains for the S&P 500, according to data compiled by Bank of America analyst Jared Woodard. Here are three stock-split stocks with as much as 148% upside ahead, according to certain Wall Street analysts. Arguably, the most celebrated stock-split stock in recent memory is Nvidia (NVDA 4.55%), and the chipmaker still has a boatload of potential. It's the leading supplier of graphics processing units (GPUs) used to zip data through the ether for data centers, cloud computing, and artificial intelligence (AI). This business has eclipsed its humble roots generating lifelike images in video games. For its fiscal 2025 first quarter (ended April 28), Nvidia generated record revenue that surged 262% year over year to $26 billion, resulting in diluted earnings per share (EPS) that soared 629% to $5.98. The results were driven by data center revenue -- which includes cloud and AI chips -- as revenue for the segment rose 427% to $22.6 billion. That marked the fourth consecutive quarter of triple-digit sales and profit gains. It's little wonder that results of that magnitude have supercharged Nvidia's stock price, which has gained nearly 800% since the start of 2023, resulting in its high-profile 10-for-1 stock split in June. However, some on Wall Street believe that's just the tip of the iceberg. Rosenblatt analyst Hans Mosesmann maintains a buy rating on Nvidia and a Street-high price target of $200, which represents potential upside of 62% compared to Thursday's closing price. The analyst cites Nvidia's accelerated development cycle and track record of innovation as evidence there's more upside to come. "We see Nvidia's Hopper, Blackwell, and Rubin series driving 'value' market share in one of Silicon Valley's most successful silicon/platform product cycles," Mosesmann wrote in a note to clients. He isn't alone in his bullish outlook. Of the 59 analysts who offered an opinion in July, 54 rated the stock a buy or strong buy, and none recommended selling. I believe the analyst hit the nail on the head. Nvidia's customers have reported they're ramping up capital expenditure spending on AI, which directly benefits Nvidia. Furthermore, partners have reported bullish results, which suggests the AI revolution is ongoing. To me, this is compelling evidence that Nvidia stock has further to climb. The second stock-split stock with significant upside is MicroStrategy (MSTR 12.11%), which split its stock earlier this month. The company provides subscription-based AI-fueled business analytics software that allows non-technical users to gain actionable insights from their data. MicroStrategy also provides cloud-based services to government entities. What sets the company apart, however, is its Bitcoin strategy, which is really turning heads. MicroStrategy bills itself as "the largest corporate holder of Bitcoin and the world's first Bitcoin development company." For the second quarter, subscription services revenue climbed 21% year over year, though total revenue declined by 7%, and its operating loss increased more than sevenfold. However, MicroStrategy made much more progress on the Bitcoin front, increasing its holdings to 226,500 Bitcoins, worth more than $13 billion as of this writing, well ahead of its cost basis of $8.3 billion. Despite the company's risky strategy, some on Wall Street remain bullish. Benchmark analyst Mark Palmer has a buy rating on MicroStrategy, with a split-adjusted, Street-high price target of $215. That represents potential upside of 61% compared to Thursday's closing price. The analyst says that while the company has its detractors, since adopting its Bitcoin strategy four years ago, MicroStrategy's stock price has soared nearly 1,000%, far outpacing the returns of Bitcoin itself, which has gained 413%. This no doubt played into the company's 10-for-1 stock split earlier this month. Wall Street is clearly in agreement. Of the seven analysts who covered the stock in July, every one rated it a buy or strong buy, and none recommended selling. For investors who believe that Bitcoin will hold its value and continue to gain ground over time, MicroStrategy's strategy is sheer brilliance. However, it's important to remember that as recently as late 2022, Bitcoin lost as much as 75% of its value. An investment in MicroStrategy could be equally volatile. I believe MicroStrategy offers a compelling opportunity for investors with an appetite for some volatility and a long investing time horizon. That said, I also believe there's a certain degree of risk and that MicroStrategy should represent a small part of a balanced portfolio. The last of my trio of stock-split stocks with a boatload of potential is Super Micro Computer (SMCI 1.39%), also known as Supermicro. The company is one of the premier providers of custom servers in the industry, backed by more than three decades of experience. Supermicro made the jump to the big leagues thanks to robust demand from those wanting to join the AI revolution. However, it was the company's building-block architecture, energy efficiency, and direct liquid cooling that boosted demand for its rack-scale servers, as the devices could be customized to the user's needs while still providing power efficiency and withstanding the harsh demands needed to run AI models. In its fiscal 2024 fourth quarter (ended June 30), Supermicro reported record revenue that soared 143% year over year to $5.3 billion, which marked an increase of 38% sequentially. This generated adjusted earnings per share (EPS) that jumped 78% to $6.25. This marked the company's third consecutive quarter of triple-digit gains. Supermicro's consistently robust growth has sent its stock price into the stratosphere, delivering gains of 637% since early last year, which likely factored into the company's decision to announce a 10-for-1 stock split earlier this month. Wall Street believes there's more upside ahead. Loop Capital analyst Ananda Baruah is among the biggest bulls, with a buy rating on the stock and a Street high price target of $1,500. That represents potential gains for investors of 148% compared to Thursday's closing price. The analyst believes Supermicro has much greater sales potential than Wall Street is giving the company credit for, estimating its revenue run rate will climb to $40 billion by the end of fiscal 2026. For context, Supermicro generated revenue of less than $15 billion in fiscal 2024. The analyst's forecast also aligns closely with management's guidance, which calls for net sales of roughly $28 billion for fiscal 2025. Wall Street seems to agree. Of the 17 analysts who covered the stock in July, 11 rated the stock a buy or strong buy, and none recommended selling. I'm completely on board with this analyst's take. The company continues to take market share from its larger rivals, further accelerating its growth, and has a pole position in the AI revolution.

Is It Too Late to Buy Supermicro Stock?

Can Super Micro Computer sustain its incredible AI growth? Here's how the company is making the most of this unexpected golden age. Super Micro Computer (SMCI 2.20%) has been building server systems for 30 years. Some of the world's most powerful supercomputers come from Supermicro's factories, and the company is a leading maker of high-efficiency systems for training and running advanced artificial intelligence (AI) services. The AI boom has been very kind to Supermicro and its investors. The stock has gained 779% in two years, outperforming even AI chip giant Nvidia (NVDA 3.98%). Can this skyrocketing stock fly any higher, or is it already too late to invest in Supermicro? Supermicro by the numbers The stock is soaring for good reason. Supermicro's trailing sales are up by 144% in two years, dating back to just before OpenAI launched its revolutionary ChatGPT service. Adjusted earnings rose 148% over the same period: SMCI Revenue (TTM) data by YCharts Thanks to the soaring financials, Supermicro's stock still looks fairly affordable. Shares are changing hands at 31 times trailing earnings and 2.4 times sales -- not exactly bargain-bin material but those valuation ratios are far below Nvidia's. Moreover, Supermicro's management expects its high-octane sales growth to persist in the recently started fiscal year 2025. Revenues should rise by approximately 88% this year. That's down from 110% in the 2024 fiscal year that ended on June 30, but still an impressive growth projection for a company with $14.9 billion in annual sales. Behind this bullish trend, you'll find customers embracing Supermicro's modular system designs and ultra-efficient liquid cooling systems. The company is becoming the go-to solutions for IT shops seeking high-performance computing solutions with modest electric power draws and efficient cooling. Supermicro's reinvestment strategy Supermicro isn't resting on its AI laurels. The company is reinvesting its recent profit streams into forward-looking growth drivers. Fourth-quarter operating costs rose by 38% year over year as Supermicro hired and trained more engineers. Capital expenses quadrupled because of generous upgrades to Supermicro's manufacturing facilities. The forward-looking infrastructure improvements come with some uncomfortable short-term effects. Supermicro's warehouses are bulging with $4.4 billion of inventories, up from $1.4 billion a year ago. Together with the high operating costs and capital expenses, free cash flows are deeply negative right now: SMCI Free Cash Flow data by YCharts That's enough to keep some investors away from Supermicro's stock. However, the company has $1.7 billion of cash reserves to provide a resilient cash cushion while applying a financial laser focus on the AI-driven market opportunity. Golden ages like this one don't come around too often, and it would be a shame to give up on the next few years of potential gains just because it's expensive in the short term. I like companies willing to face temporary costs to build a better long-term future. You didn't miss the Supermicro train yet Supermicro's growth story is firing on all cylinders. The company is pocketing massive sales growth and profits today, and management chooses to invest that windfall in taking full advantage of this rare opportunity. The stock is soaring but still reasonably affordable, and that's another unusual combination. Nobody saw this spike coming from a relatively sleepy systems builder, but Supermicro is taking full advantage of this golden age. If you're looking for a direct bet on hardware providers in the AI industry, Supermicro's stock offers a more affordable entry point than Nvidia's nosebleed-inducing valuation ratios. Supermicro isn't my favorite AI investment right now, but it's hard to find a better idea on the hardware side of this boom.