Despite the huge gains of Super Micro Computer (NASDAQ:SMCI) stock over the past year, I continue to remain bullish on the firm’s shares. Among the reasons for my continued optimism are the company’s impressive partnerships and the low chances that its allies would look to switch to other partners anytime soon. Moreover, Super Micro Computer stock has an important technological advantage over its competitors and reports that it is continuing to innovate in order to stay ahead of the rest of the pack.
Finally, given the high likelihood of AI continuing to proliferate rapidly for many years, SMCI will probably deliver very strong growth over the long term,, while the valuation of Super Micro Computer stock remains quite attractive.
SMCI’s Impressive Alliances
Super Micro partners closely with leading AI chip makers Nvidia (NASDAQ:NVDA), AMD (NASDAQ:AMD), and Intel (NASDAQ:INTC). As a result, Moreover, Super Micro Computer stock is able to get early access to the AI chips from these firms and make modifications to its servers which work in tandem with the semiconductors before its competitors can similarly alter their offerings. JPMorgan, in a recent note to investors, identified this advantage as an important edge for SMCI.
What’s more, the bank views Super Micro’s close geographical proximity to both Nvidia and AMD (all three firms are located in Northern California) as an important edge for the server maker. Intel’s headquarters are also in the same region.
Nvidia, AMD, and Intel are all used to working with Super Micro and all three of SMCI’s partners are conveniently located very close to it, while switching to other partners would cost the chip makers significant amounts of time and money. Consequently, I don’t expect SMCI’s collaborators to abandon it in the foreseeable future.
SMCI’s Technological Edge
On the technological front, Super Micro is a leader in using liquid cooling equipment to reduce the temperature of its products. Data centers’ equipment becomes quite hot when producing and powering AI systems, and a great deal of power must be used in order to cool the equipment with air conditioning. Consequently, SMCI’s liquid cooling offering saves data centers significant amounts of money. Since electricity prices will probably rise meaningfully over the longer term in the U.S. due to increasing demand for the product, the company’s liquid cooling system will become even more valuable in the coming years.
And importantly, Super Micro is continuing to develop new liquid-cooling options in order to stay ahead of the competition. Last September, CEO Charles Liang reported that it was “developing products that deliver (liquid cooling) at system, rack, and datacenter scale.”
Tremendous Growth Outlook and an Attractive Valuation
Super Micro’s products are essential for creating and powering AI systems, while the demand for AI is expected to grow rapidly over a long period of time. Indeed, Statista anticipates that the global AI market will soar from about $200 billion last year to more than $1.8 trillion by 2030. Given these points, SMCI is very well-positioned to continue to expand tremendously for the foreseeable future.
Meanwhile, Wall Street analysts are quite bullish on the company’s short-term growth outlook. On average, they expect its sales to soar 106% this year before climbing another 42% in 2025. Given the high likelihood that AI will continue proliferating very quickly next year, I think that the analysts’ 2025 outlook for SMCI will prove to be overly conservative.
And given Super Micro’s very impressive growth ,the valuation of Super Micro Computer stock is rather low. The firm’s forward price-earnings ratio of 30.8 times is quite small for a company that is expanding so rapidly and is in a sector with huge amounts of potential.
On the date of publication, Larry Ramer held long positions in SMCI and INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
