Super Micro Computer Stock Soars: A Deep Dive into the AI Server Maker's Remarkable Growth

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

Enthusiasm around artificial intelligence (AI) has played a big role in pushing the markets higher so far this year. Although big tech stocks such as Nvidia and Microsoft have witnessed outsize buying activity, many investors have been looking at less obvious choices in hopes of identifying the next big AI opportunity. One such company that has experienced its share of hype is Super Micro Computer (SMCI 2.33%). Shares of the AI darling are up 234% over the last year, and 218% just in 2024. While Supermicro has been closely affiliated with Nvidia, the underlying business is actually quite different -- and in my opinion, I think it's far less lucrative. Let's dig into the investment prospects of Supermicro and explore if the stock deserves a spot in your portfolio. Perhaps the hottest pocket of the AI realm is semiconductors. Demand is soaring for graphics processing units (GPUs) as generative AI applications continue to evolve. For now, Nvidia, AMD, Intel, and some other chip designers have emerged as the biggest names in the GPU market. While Supermicro is works with many chip companies, it's not a semiconductor company itself. Rather, Supermicro specializes in IT infrastructure. Essentially, the company designs architecture solutions such as storage clusters for high-performance GPUs. The revenue trends seen below illustrate how the heightened demand and buying activity surrounding chips has served as a bellwether for Supermicro's services over the last couple of years. While the newfound revenue growth is encouraging, there are some lowlights investors should be aware of when it comes to Supermicro. While rising demand can be considered a good thing for Supermicro, keep in mind that building IT infrastructure is an expensive business. Take a look at the dynamics in the charts below. In more recent quarters, Supermicro's capital expenditures (capex) have ballooned. The idea I'm trying to convey here is that while the company's revenue is surging, expenses are also rising significantly. This dynamic is directly impacting Supermicro's margin profile. As observed below, Supermicro's gross margin is actually plateauing at the moment. Admittedly, the financials analyzed above aren't necessarily a reason to run for the hills. However, there are a couple of other potential issues to explore as they relate to Supermicro. Keep in mind that the semiconductor space is a cyclical industry. Right now, chip businesses are enjoying a bit of a renaissance fueled by AI euphoria. But like any other type of business, eventually supply and demand trends will normalize. That could spell trouble for Supermicro in the long run. It's pretty difficult to forecast demand for any product, let alone cutting-edge chips that are used for breakthrough applications in AI. Those themes have me concerned that Supermicro's business may witness a deceleration. This could further impact the company's profitability profile, which would be an unwelcome surprise given the already low-margin nature of the business. While many investors have undoubtedly made a lot of money owning Supermicro stock, I'm skeptical that the returns were for the right reasons. I am suspicious that many investors see Supermicro as analogous to Nvidia and have poured into the stock accordingly. Therefore, when Nvidia and other chip stocks begin trading upwards, shares of Supermicro have followed. The chart above benchmarks Supermicro against a peer set on a price-to-earnings (P/E) basis. The obvious takeaway from the valuation trends above is that Supermicro is valued at a significant premium to its peers. However, a more subtle argument is that businesses such as Dell Technologies and International Business Machines in particular are not only much larger than Supermicro, but they are far more diversified when it comes to products and services. And yet Supermicro's P/E is more than double that of IBM and meaningfully higher than Dell's. Considering the level of competition and the cyclicality of the chip space more broadly, mixed with the high capex and low-margin nature of Supermicro's business, I can't help but think the stock is overvalued. I think investors with a long-term horizon have better opportunities in the chip space and the AI arena in general. While scooping up Supermicro stock looks tempting, I see the company as more of trade and less of an investment.

Why Super Micro Computer Stock Had a Super Massive 188% Gain in the 1st Half of 2024 | The Motley Fool

Shares of computing company Super Micro Computer (SMCI 2.33%) had a super, massive 188.2% gain in the first half of 2024, according to data provided by S&P Global Market Intelligence. That's incredible enough. But by March, the stock was already up more than 300% year to date, which dwarfs its first-half returns by comparison. Put another way, Super Micro Computer stock is down more than 20% from its 2024 high. So, depending on when investors bought shares, they're either really happy or a little disappointed. Super Micro Computer's management gave a business update on Jan. 18 that got things rolling. And it followed it up with a positive financial report for its fiscal second quarter of 2024 on Jan. 29. Before the year started, the company said that it would generate net sales of about $2.8 billion in Q2. But in January's update, management said it would have Q2 net sales of at least $3.6 billion. It ultimately wound up with net sales of $3.65 billion -- the magnitude of this outperformance is unbelievable. For perspective, Super Micro Computer's Q2 net sales were up 103% year over year and roughly 30% ahead of its original guidance for the quarter. The company's products are in hot demand right now because they're useful for building infrastructure for artificial intelligence (AI). With booming sales, Super Micro Computer's profits are also soaring. In Q2, it had earnings per share (EPS) of $5.10, which were up 62% from the prior-year period. Looking at the sales boom and the profitability, S&P Global decided to add Super Micro Computer to the S&P 500 on March 1. This was another catalyst for the stock. It became effective on March 18, which is about when the stock peaked. Growth continued accelerating for Super Micro Computer in its fiscal third quarter of 2024 as well. On April 30, the company reported Q3 net sales of $3.85 billion, which were up 200% year over year. But believe it or not, too much growth can have its challenges. Super Micro Computer's growth has been so sudden and intense that there are some cash-flow issues. On March 19, the company decided to do a secondary stock offering to raise money to build inventory and expand manufacturing. This is after it raised $1.5 billion in February by issuing convertible notes. It's not necessarily a bad thing. But offering shares did cause it to slip from highs. For the year, Super Micro Computer expects net sales of at least $14.7 billion -- more than double its net sales in fiscal 2023. Clearly demand remains for its products. How long will demand last? Given that it's building up the business now with its new cash, Super Micro Computer believes things are just getting started. If management is right, there could be more good times ahead for shareholders, even if it's not quite as good as the first half of 2024.