Charles Liang, the creator and Chief Executive Officer of Super Micro Computer Inc. (SMCI), made his way into a theater approximately two decades ago. As an interesting aside, this is not the beginning of a joke. Seated comfortably, he immersed himself in the science fiction thriller “The Day After Tomorrow,” which depicted the catastrophic consequences of excessive fossil fuel consumption leading to a new ice age.
This cinematic experience prompted Charles to contemplate the significance of energy consumption, particularly in the production of motherboards—circuit boards that serve as the backbone of computing devices—at Super Micro Computer. Recognizing the critical need for energy efficiency in their operations, he resolved to prioritize the development of high-efficiency energy supplies, complete systems, and data centers.
This strategic shift propelled Super Micro Computer to the forefront of the software industry in recent years. Notably, amidst the ongoing management transitions in the market, the once-dominant “Magnificent Seven” stocks in the S&P 500 and NASDAQ 100, including Amazon.com, Inc. ( AMZN), Apple ( AAPL), Alphabet ( GOOG), Microsoft Corporation ( MSFT), Meta Platforms, NVIDIA ( NVDA), and Tesla ( TSLA), are facing challenges. Only three out of the six companies that have reported earnings thus far have demonstrated robust performance during the third quarter. (NVIDIA’s earnings report is scheduled for Wednesday, February 21.)
In contrast, SMCI has been leading the pack, consistently achieving new highs over the past several months. With a remarkable 159% year-over-year increase and an astounding 745% surge in the last 12 months, Super Micro Computer’s trajectory is truly remarkable.
To shed light on Super Micro Computer’s remarkable journey and delve into the rationale behind its meteoric rise, I intend to feature it in today’s Market 360. Having identified the company’s potential before it gained widespread recognition on Wall Street, I will delve into the reasons behind my investment recommendation in 2022 and assess its current viability as an investment opportunity.
Unveiling Super Micro Computer
Below, you will find essential insights into Super Micro Computer and its remarkable surge in the market. Specializing in the production of equipment and computer servers for data centers and beyond, the company has experienced heightened demand for these technologies and its AI systems.
The excitement surrounding SMCI commenced on January 18th with the preliminary results for the upcoming quarter of fiscal year 2024 released by Super Micro. Driven by the soaring demand for AI infrastructure, the preliminary figures were nothing short of impressive. The subsequent announcement on Monday, January 29, revealed that total sales had more than doubled to \(3.66 billion in the second quarter of fiscal year 2024, accompanied by a 71.5% year-over-year increase in earnings to \)5.59 per share. Although slightly below the consensus estimate, which projected earnings of \(4.93 per share on \)3.06 billion in sales, Super Micro’s performance was still commendable.
Bolstered by the persistent demand, Super Micro once again revised its outlook for fiscal year 2024 upwards. Originally forecasting revenues between \(10.0 billion and \)11.0 billion, the company now anticipates a full-year revenue range of \(14.3 billion to \)14.7 billion. Consequently, research analysts have been revising revenue projections for the third and fourth quarters, with third-quarter earnings expected to surge by 249.7% year over year to \(5.70 per share, surpassing the previous estimate of \)4.30.
Since then, SMCI has been on an upward trajectory.
Insights from 2022 Investment Recommendation
In June 2022, Super Micro Computer caught my attention long before it became a Wall Street darling. At that time, the company had just set a record for the next quarter of fiscal year 2022. Third-quarter revenue had surged by 51% year over year to \(1.36 billion, exceeding analysts’ forecasts of \)1.32 billion. Earnings also witnessed a remarkable 21% year-over-year increase to \(1.55 per share, up from \)0.50 in the third quarter of 2021. Notably, analysts had projected earnings of $1.12 per share, making SMCI’s earnings surprise of 38.4% quite unexpected.
Recognizing the company’s exceptional performance, coupled with its impressive grades in Portfolio Grader for both Fundamental and Quantitative metrics, I recommended to my Accelerated Profits subscribers to invest in SMCI shares when they were trading around $50.
Since then, SMCI has delivered an extraordinary 1,332% return, validating the investment thesis.
Is SMCI Still a Viable Investment?
Amidst the remarkable run this year, questions have arisen regarding the sustainability of SMCI as an investment. According to my grading system, the outlook remains positive.
Despite a slight downgrade in its Fundamental Grade to a B, SMCI still maintains an A-rating, signifying its continued strength as an investment opportunity. With a price-to-earnings ratio of 21.6 times expected median earnings, alongside projected earnings growth of 249.7% and sales growth of 204%, SMCI presents significant upside potential.
In essence, as long as the company continues to deliver robust financial performance, SMCI is poised for further growth.
In conclusion, SMCI stands out as a stellar stock, particularly within the AI sector, offering substantial growth prospects.
Navigating the Market Leaders
I firmly believe that SMCI is positioned to maintain its market dominance. Furthermore, I anticipate that many of the companies on my Increased Income list will continue to excel and drive market growth.
With an average expected earnings growth of 204.6% and forecasted sales growth of 36.8%, the companies featured on my Accelerated Profits Buy List have been receiving positive analyst revisions, indicating a favorable outlook.
For immediate access to my Buy List and to benefit from the potential income opportunities, I invite you to join me at Accelerated Profits. By subscribing, you will gain access to Monthly Issues, Weekly Updates, Special Market Audiobooks, and more exclusive content.
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Best regards,
Navellier, Louis Market 360 Editor
Disclosure: The Editor hereby discloses that, at the time of this communication, they directly or indirectly hold securities of the following entities, which are the focus of any discussions, analyses, opinions, advice, or recommendations in the subsequent content or are frequently referenced: Microsoft Corporation (MSF), Super Micro Computer, Inc. (SMCI), and NVIDIA (NVDA)
