Super Micro Computer: The Rising Star in AI Infrastructure

1 Top Artificial Intelligence (AI) Stock to Buy Before It Soars 84%, According to Loop Capital

Super Micro Computer (NASDAQ: SMCI), more commonly known as Supermicro, is one the of market's hottest artificial intelligence (AI) stocks. Its shares have rallied 2,290% over the past three years as its sales of AI servers skyrocketed. Yet Supermicro remains a divisive stock among analysts. Susquehanna's Mehdi Hosseini expects it to drop 60% to $325, while Loop Capital's Ananda Baruah says it can soar 84% to $1,500. Can it really hit that Street-high price target? Supermicro controls a much smaller slice of the traditional server market than Dell Technologies (NYSE: DELL) and Hewlett Packard Enterprise (NYSE: HPE). However, it carved out its own niche by selling high-performance servers. That focus made Supermicro an ideal partner for Nvidia (NASDAQ: NVDA), which initially granted it access to its high-end data center GPUs before its larger competitors. That partnership gave Supermicro a first-mover advantage in AI servers, and the growth of that business accelerated over the past few years as the AI market expanded. From fiscal 2019 to fiscal 2021 (which ended in June 2021), Supermicro's revenue increased at an anemic compound annual growth rate (CAGR) of less than 1% as it struggled with pandemic-driven disruptions and supply chain constraints. But from fiscal 2021 to fiscal 2023, its revenue rose at a CAGR of 42% as its EPS skyrocketed at a CAGR of 134%. That acceleration was driven by its brisk sales of dedicated AI servers, which generated about half of its revenue by the end of fiscal 2023. Bank of America estimates Supermicro's share of the AI server market will rise from 10% in 2023 to 17% in 2026 as the entire market expands 150%. Research and Markets expects the global AI server market to grow at a CAGR of 26.5% from 2024 to 2029. From fiscal 2023 to fiscal 2026, analysts expect Supermicro's revenue and EPS to increase at CAGRs of 58% and 52%, respectively. Those are impressive growth rates for a stock that trades at just 27 times next year's earnings. The bull case vs. the bear case The bulls believe Supermicro will maintain its early-mover advantage in the AI server market, continue to grow its market share, and expand beyond Nvidia-powered AI servers through new deals with AMD and Intel. In Loop Capital's latest investor note in April, it said Supermicro's business "remains healthy" and will profit from the expansion of the AI market. Loop Capital also co-managed a $1.7 billion senior unsecured convertible notes offering for Supermicro this February, so it might have a deeper insight into its core business than other Wall Street firms. Assuming Supermicro meets Wall Street's expectations and still trades at 27 times forward earnings, its stock price could nearly hit $1,100 by the beginning of fiscal 2026. To hit $1,500 by then, it would need to be trading at about 37 times forward earnings. That's not terribly expensive for a high-growth AI stock, but it's a bit pricey compared to traditional server makers like Dell and HPE, which trade at 24 and 13 times forward earnings, respectively. If Supermicro's growth unexpectedly cools off and it's revalued as a legacy server maker again, its stock could plummet. The bears believe that could happen for two simple reasons. First, competition from Dell and HPE -- which are both expanding their AI server businesses -- could curb Supermicro's growth and crush its margins. Supermicro's partnership with Nvidia also isn't exclusive, and its top competitors are buying up a lot of those data center GPUs. Second, the broader AI market could gradually cool off, and that slowdown might be exacerbated by tighter regulations, geopolitical tensions, and export curbs. Does Loop Capital's price target seem reasonable? I'm optimistic about Supermicro's future, but I don't think it will hit $1,500 in three years. I believe its strengths outweigh its weaknesses, but the average price target of just over $1,000 seems more reasonable in this choppy market. Over the long term, Supermicro could soar past $1,500 if it maintains its lead in liquid-cooled high-end servers and expands its slice of the AI server market. That said, investors should buckle up and brace for a lot of volatility before it reaches that target. Should you invest $1,000 in Super Micro Computer right now? Before you buy stock in Super Micro Computer, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Super Micro Computer wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $722,626!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Bank of America, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Where Will Super Micro Computer Stock Be in 5 Years?

With shares up by over 4,100% in the last five years, Super Micro Computer (NASDAQ: SMCI) is one of the few tech stocks that has trounced Nvidia -- the current leader in AI hardware. It likely outperformed because of its smaller size and historically lower valuation. Interest in generative AI software exploded after the launch of OpenAI's ChatGPT in late 2022. However, from an investor perspective, the biggest winners have been the infrastructure companies supplying the hardware that makes training and running large language models (LLMs) possible. Unlike Nvidia, Supermicro is not a chipmaker. Instead, it turns the chips designed by other companies into ready-to-use computer systems and servers. This niche allows it to benefit tremendously from the soaring demand for Nvidia's AI-capable graphics processing units (GPUs). The impacts of this boom are evident in its fiscal third-quarter earnings. Image source: Getty Images. Net sales jumped 200% year over year to $3.85 billion based on demand for plug-and-play AI servers for data center clients. Management expects to continue gaining market share by creating new server designs. Part of Supermicro's edge comes from its focus on energy efficiency. This can lead to cost savings for clients, which is becoming increasingly important due to the sheer volume of energy required for AI workloads. What will the next five years have in store? While Supermicro's niche has allowed it to perform spectacularly well over the previous five years, the next half-decade might be more difficult. Right now, the company seems to be piggybacking off the innovations of Nvidia and other AI GPU makers more than its own. And this might make it more vulnerable to competition in the data center server market. Rivals like Dell and Hewlett-Packard Enterprise fulfill a similar role of turning AI GPU chips into ready-to-use data center servers. Over the next five years, these companies could pressure Supermicro's economic moat, which would hurt its growth potential and margins. In the third quarter, Supermicro's gross margin (sales minus cost of goods sold as a percentage) fell from 17.6% to 15.4%. This trend suggests the company's pricing power is declining, and it might be relying on reducing prices to support its expansion. For comparison, Nvidia's gross margin increased from 43.5% to 70.1% in its most recent quarter because it is much harder for clients to replace its products. Is Super Micro Computer stock a buy? Supermicro has become a Wall Street darling by serving as a middleman between AI chipmakers and their data center clients. This role has allowed it to benefit from the soaring demand for Nvidia GPUs, and this business probably won't go away anytime soon. That said, investors should expect margins to continue declining as competition rises. The good news is that with a forward price-to-earnings (P/E) multiple of just 22, Supermicro's shares are significantly cheaper than Nvidia, which has a forward P/E of 46. The market seems to be pricing in Supermicro's potential challenges, so it remains a relatively affordable way to bet on the long-term AI opportunity despite its recent rally. Should you invest $1,000 in Super Micro Computer right now? Before you buy stock in Super Micro Computer, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Super Micro Computer wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $722,626!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

1 Top Artificial Intelligence (AI) Stock to Buy Before It Soars 84%, According to Loop Capital | The Motley Fool

Super Micro Computer could still have a lot of upside potential. Super Micro Computer (SMCI -0.60%), more commonly known as Supermicro, is one the of market's hottest artificial intelligence (AI) stocks. Its shares have rallied 2,290% over the past three years as its sales of AI servers skyrocketed. Yet Supermicro remains a divisive stock among analysts. Susquehanna's Mehdi Hosseini expects it to drop 60% to $325, while Loop Capital's Ananda Baruah says it can soar 84% to $1,500. Can it really hit that Street-high price target? Supermicro controls a much smaller slice of the traditional server market than Dell Technologies (DELL 0.36%) and Hewlett Packard Enterprise (HPE -0.92%). However, it carved out its own niche by selling high-performance servers. That focus made Supermicro an ideal partner for Nvidia (NVDA -2.61%), which initially granted it access to its high-end data center GPUs before its larger competitors. That partnership gave Supermicro a first-mover advantage in AI servers, and the growth of that business accelerated over the past few years as the AI market expanded. From fiscal 2019 to fiscal 2021 (which ended in June 2021), Supermicro's revenue increased at an anemic compound annual growth rate (CAGR) of less than 1% as it struggled with pandemic-driven disruptions and supply chain constraints. But from fiscal 2021 to fiscal 2023, its revenue rose at a CAGR of 42% as its EPS skyrocketed at a CAGR of 134%. That acceleration was driven by its brisk sales of dedicated AI servers, which generated about half of its revenue by the end of fiscal 2023. Bank of America estimates Supermicro's share of the AI server market will rise from 10% in 2023 to 17% in 2026 as the entire market expands 150%. Research and Markets expects the global AI server market to grow at a CAGR of 26.5% from 2024 to 2029. From fiscal 2023 to fiscal 2026, analysts expect Supermicro's revenue and EPS to increase at CAGRs of 58% and 52%, respectively. Those are impressive growth rates for a stock that trades at just 27 times next year's earnings. The bulls believe Supermicro will maintain its early-mover advantage in the AI server market, continue to grow its market share, and expand beyond Nvidia-powered AI servers through new deals with AMD and Intel. In Loop Capital's latest investor note in April, it said Supermicro's business "remains healthy" and will profit from the expansion of the AI market. Loop Capital also co-managed a $1.7 billion senior unsecured convertible notes offering for Supermicro this February, so it might have a deeper insight into its core business than other Wall Street firms. Assuming Supermicro meets Wall Street's expectations and still trades at 27 times forward earnings, its stock price could nearly hit $1,100 by the beginning of fiscal 2026. To hit $1,500 by then, it would need to be trading at about 37 times forward earnings. That's not terribly expensive for a high-growth AI stock, but it's a bit pricey compared to traditional server makers like Dell and HPE, which trade at 24 and 13 times forward earnings, respectively. If Supermicro's growth unexpectedly cools off and it's revalued as a legacy server maker again, its stock could plummet. The bears believe that could happen for two simple reasons. First, competition from Dell and HPE -- which are both expanding their AI server businesses -- could curb Supermicro's growth and crush its margins. Supermicro's partnership with Nvidia also isn't exclusive, and its top competitors are buying up a lot of those data center GPUs. Second, the broader AI market could gradually cool off, and that slowdown might be exacerbated by tighter regulations, geopolitical tensions, and export curbs. I'm optimistic about Supermicro's future, but I don't think it will hit $1,500 in three years. I believe its strengths outweigh its weaknesses, but the average price target of just over $1,000 seems more reasonable in this choppy market. Over the long term, Supermicro could soar past $1,500 if it maintains its lead in liquid-cooled high-end servers and expands its slice of the AI server market. That said, investors should buckle up and brace for a lot of volatility before it reaches that target.

Where Will Super Micro Computer Stock Be in 5 Years?

But with its market cap of $47 billion, Super Micro is no longer a small, undiscovered tech stock. Let's dig deeper to find out if it can still maintain market-beating growth over the next half-decade. Interest in generative AI software exploded after the launch of OpenAI's ChatGPT in late 2022. However, from an investor perspective, the biggest winners have been the infrastructure companies supplying the hardware that makes training and running large language models (LLMs) possible. Unlike Nvidia, Supermicro is not a chipmaker. Instead, it turns the chips designed by other companies into ready-to-use computer systems and servers. This niche allows it to benefit tremendously from the soaring demand for Nvidia's AI-capable graphics processing units (GPUs). The impacts of this boom are evident in its fiscal third-quarter earnings. Net sales jumped 200% year over year to $3.85 billion based on demand for plug-and-play AI servers for data center clients. Management expects to continue gaining market share by creating new server designs. Part of Supermicro's edge comes from its focus on energy efficiency. This can lead to cost savings for clients, which is becoming increasingly important due to the sheer volume of energy required for AI workloads. What will the next five years have in store? While Supermicro's niche has allowed it to perform spectacularly well over the previous five years, the next half-decade might be more difficult. Right now, the company seems to be piggybacking off the innovations of Nvidia and other AI GPU makers more than its own. And this might make it more vulnerable to competition in the data center server market. Rivals like Dell and Hewlett-Packard Enterprise fulfill a similar role of turning AI GPU chips into ready-to-use data center servers. Over the next five years, these companies could pressure Supermicro's economic moat, which would hurt its growth potential and margins. In the third quarter, Supermicro's gross margin (sales minus cost of goods sold as a percentage) fell from 17.6% to 15.4%. This trend suggests the company's pricing power is declining, and it might be relying on reducing prices to support its expansion. For comparison, Nvidia's gross margin increased from 43.5% to 70.1% in its most recent quarter because it is much harder for clients to replace its products. Is Super Micro Computer stock a buy? Supermicro has become a Wall Street darling by serving as a middleman between AI chipmakers and their data center clients. This role has allowed it to benefit from the soaring demand for Nvidia GPUs, and this business probably won't go away anytime soon. That said, investors should expect margins to continue declining as competition rises. The good news is that with a forward price-to-earnings (P/E) multiple of just 22, Supermicro's shares are significantly cheaper than Nvidia, which has a forward P/E of 46. The market seems to be pricing in Supermicro's potential challenges, so it remains a relatively affordable way to bet on the long-term AI opportunity despite its recent rally.