Super Micro Computer Stock: A Hot Topic in the AI Hardware Market

Should You Buy Super Micro Computer Stock Ahead of Its High-Profile 10-for-1 Stock Split? Here's What History Shows. | The Motley Fool

This will mark the first-ever stock split for the AI-centric server specialist. But is it a buy? On Aug. 6, in conjunction with the results of its fiscal 2024 fourth quarter (ended June 30), Super Micro Computer (SMCI 4.59%), commonly called Supermicro, announced plans to initiate a 10-for-1 stock split. As a result of the split, shareholders will receive nine additional shares for each share of common stock they already own. The split will be conducted after the market closes on Monday, Sept. 30. The stock will begin trading on a split-adjusted basis on Tuesday, Oct. 1. Stock splits tend to generate a lot of buzz among investors, and Supermicro is no different. Furthermore, the company's robust performance over the past couple of years has fueled an eye-popping surge in the share price, as the stock has gained 433% since early last year (as of this writing). After gains of that magnitude, investors are left to consider the question: Is Supermicro stock a buy ahead of its high-profile stock split? Let's see what history has to say. Market historians will note this is the first time Supermicro has initiated a stock split in its 17 year stint as a public company, so there's no track record to review. Fortunately, there are other resources investors can use to provide insight into how Supermicro stock might perform post-split. Research conducted by analysts from Bank of America revealed that companies that initiated stock splits generated returns of 25% in the 12 months after the stock split was announced, compared to returns of just 12% for the broader index, as represented by the S&P 500. To be clear, the catalyst for the additional gains wasn't the stock split itself but rather the strong business and financial results that precipitated the stock split. Investors can learn valuable lessons from other fields of study, and one seems particularly fitting. Sir Isaac Newton's first law of motion states that an object in motion tends to stay in motion unless acted upon by an outside force. In other words (and when applied to investing and stock splits), winners tend to keep winning. While there is certainly the potential for short-term gains over the next year or so, long-term investors will still want to know whether Supermicro stock is a buy ahead of its high-profile stock split. A review of the company's recent results can be instructional. In its fiscal 2024 fourth quarter (ended June 30), Supermicro reported record revenue that soared 143% year over year to $5.31 billion while also increasing 38% quarter over quarter. This resulted in adjusted earnings per share (EPS) that jumped 78% to $6.25. While results of that magnitude would normally be cause for celebration, investors were concerned about the company's lower-than-expected profit margin. In prepared remarks, CEO Charles Liang said this resulted from "the higher mix of hyperscale data center business and expedited costs of our direct liquid cooling (DLC) components in June and September quarters." He also noted a shortage of "key new components" that pushed $800 million in revenue into the following quarter. Finally, Liang said Supermicro's "dominating position in DLC" and the production facility in Malaysia coming online later this year will be "instrumental in increasing our profitability." This suggests any margin pressures will be short-lived. For the company's fiscal 2025 first quarter, management is guiding for revenue in a range of $6 billion to $7 billion, which would represent year-over-year growth of about 206%. The company is also forecasting adjusted EPS growth of 118% at the midpoint of its guidance. Management clearly expects Supermicro's growth spurt to continue. I'd be remiss if I didn't address the elephant in the room. The general weakness in artificial intelligence (AI) stocks of late, the aforementioned decline in its profit margin, and largely unfounded allegations by a short-seller have combined to weigh on Supermicro's share price, currently down 63% from its peak. Investors abhor uncertainty, which explains the rampant selling. However, given the company's continued strong performance, I'd respectfully submit the selling is overdone. It's still early innings for generative AI, which is the driving force behind Supermicro's recent fortunes. According to Expert Market Research, the global AI market was estimated at $2.4 trillion in 2023 and is expected to soar more than 12-fold to $30.1 trillion by 2032, representing a compound annual growth rate of 32%. If Supermicro continues to dominate the high-end server market, it will be well positioned to grab its share of the ongoing AI windfall. Furthermore, at just 22 times earnings and less than 2 times sales, Supermicro is attractively priced, particularly in light of the significant opportunity currently unfolding. Given the available evidence, Super Micro Computer is a buy. And given the sizable opportunity and discounted price, I would submit that now is as good a time as any.

Is Super Micro Computer Stock a Buy Now? | The Motley Fool

Should investors take the risk of buying this fast-growing AI hardware play despite recent developments? Following a terrific start to the year, Super Micro Computer's (SMCI 4.59%) stock chart has undergone a stark reversal over the past six months. It has lost close to 60% of its value from its peak, and recent developments seem to have further dented investor confidence in the company. First, the fiscal 2024 fourth-quarter results it released on Aug. 6 weren't up to Wall Street's expectations, and management's guidance was disappointing. Second, short-seller Hindenburg Research released a report alleging accounting irregularities at Supermicro. Then, Supermicro management announced that it was delaying the filing of its annual report, which only added to the negative press. Those factors explain why Wall Street analysts have been downgrading the stock lately. But given that shares of this server and storage systems manufacturer are now trading at an attractive 22 times trailing earnings and 13 times forward earnings, opportunistic investors may be tempted to buy Supermicro. Should they be doing that in light of the recent developments? Investors should note that Hindenburg is a short-seller, and it has a financial interest in seeing Supermicro's stock price fall. In that context, we cannot be sure that the allegations that Hindenburg is making are valid, especially considering that the short-seller has been wrong in the past. That said, Supermicro was charged by the Securities and Exchange Commission (SEC) for accounting violations in August 2020, when it was found to have prematurely recognized revenue and understated its expenses over a three-year period. However, the company has recovered remarkably since then, clocking outstanding gains over the past couple of years thanks to the emergence of a new catalyst in the form of artificial intelligence (AI). Its revenue in its fiscal 2024 more than doubled to $14.9 billion from $7.1 billion in the previous year. Non-GAAP earnings shot up to $22.09 per share, from $11.81 per share in fiscal 2023. Addressing the delay in Supermicro's annual filing, management clarified that "we don't anticipate any material changes in our fourth quarter or fiscal year 2024 financial results." It added that the company is looking forward to a "historic" 2025 with "a record number of orders, a strong and growing backlog of design wins and leading market positions across a number of areas." Supermicro says that the recent developments won't affect its production capabilities, and it's on track to meet the demand for its AI server solutions. It's worth noting that Supermicro is expecting its fiscal 2025 revenue to land between $26 billion and $30 billion. That would be another year of remarkable growth from its $14.9 billion in fiscal 2024. Though it is facing margin challenges due to the increased investments it's making as it boosts capacity to meet the strong demand for its liquid-cooled server solutions, management is confident that it will return to its normal margin range before the fiscal year ends. Analysts' consensus estimates also indicate that Supermicro's earnings are on track to increase at an incredible pace in the current fiscal year, followed by healthy jumps in the next couple of years as well. The delay in Supermicro's annual filing led JPMorgan to downgrade the stock from overweight to neutral and to slash its price target to $500 from $950. Even Barclays downgraded the stock to equal weight from overweight, citing the margin pressure that Supermicro faces as well as the filing delay. However, JPMorgan's downgrade wasn't a result of the Hindenburg report nor a reflection of its ability to become compliant, but because of the near-term uncertainty that surrounds the company and the lack of a compelling argument to buy the stock. So, risk-averse investors would do well to wait for more clarity before buying this AI stock. However, those with higher risk appetites who are looking to add a fast-growing company to their portfolios can consider buying Supermicro now. It seems capable of sustaining its impressive growth in the long run thanks to the huge opportunities available to it in the AI server market. Analysts expect Supermicro's earnings to grow at an annualized rate of 62% over the next five years. If the company can get past its current troubles, it could turn out to be a solid investment considering the valuation at which it is trading right now.

I Just Bought the Dip on Super Micro Computer Stock

Super Micro Computer (SMCI 4.59%) investors have been on a roller-coaster ride in 2024. The stock entered the year at $280, then it quickly peaked at nearly $1,200 in March. Since then, it's been a near-straight fall down, and the stock currently sits around $440. There are some good reasons why Supermicro fell from its $1,000-plus stock price earlier this year, but I also think its current price is an absolute steal, which is why I just bought the dip on the stock. Supermicro hasn't had much positive news lately Super Micro Computer builds components for computing servers as well as full server solutions themselves. Its claim to fame in this world is that it offers highly customizable servers that can be tailored for any workload size or type. Additionally, its liquid-cooled technology alongside other innovations make its servers the most efficient in the world. This is critical, as the energy input costs into these servers are incredibly high. With massive demand for data center parts and servers, Supermicro's business has boomed, following a similar growth trajectory as Nvidia. This caused the stock to rise earlier this year, but the company has hit two major stumbling blocks along the way. This is a problem, as a plummeting gross margin can signal pricing competition, indicating that Supermicro has no real competitive advantages. However, management points to the upfront costs of getting its liquid cooling technology up and running. It expects its gross margin to improve as components become more readily available throughout fiscal year 2025 (ending June 2025). This should also improve bottom-line profitability and is a key trend to watch over the next year. The second cause for Supermciro's decline was Hindenburg Research's short report. Hindenburg is a famed short-seller, which means it profits as the stock declines. It is known to release reports on various companies, explaining why it believes the stock is mispriced. In Supermicro's case, it alleges accounting malpractice as one of the chief concerns. Supermicro didn't do itself any favors in beating these allegations by delaying its end-of-year form 10K filing to the Securities and Exchange Commission (SEC) either. The Hindenburg report doesn't concern me as much as the falling margins do, as if there are any issues, it likely only accounts for a very small fraction of Supermicro's business. As for the margins, the market is valuing the stock like it will never return to normal, which is a huge investment opportunity. The bar is fairly low for Supermicro's stock to succeed Fiscal year 2025 is expected to be another monster year of growth for Supermicro, with revenue expected to rise between 74% and 101% year over year. Furthermore, Supermicro's CEO raised his long-term outlook to $50 billion in annual revenue for the company. There's a massive opportunity here, and Supermicro will be one of the primary beneficiaries. According to Wall Street estimates, Supermicro is projected to grow its earnings by 69% in fiscal 2025. SMCI PE Ratio data by YCharts However, if Supermicro meets its revenue growth targets, its revenue growth will exceed earnings growth projections. This doesn't make much sense, especially if margins improve throughout the year, as management forecasts. This is a key reason why I'm investing in Supermicro: The stock's base case is easily achievable. If Supermicro knocks it out of the park, grows revenue at the high end of expectations, and improves margins, the stock will likely be a home run. With the general trends toward cloud computing and artificial intelligence (AI), Supermicro's business isn't slowing down anytime soon. As a result, I'm using the weakness to start a position, as it could be a huge winner in the next few years.