While the market is obsessing over chipmaker Nvidia (NASDAQ:NVDA), there are other semiconductor and hardware companies to look into that have solid exposure to artificial intelligence (AI) technologies. One of them is Super Micro Computer (NASDAQ:SMCI).
The hardware firm specializes in various products and equipment for data centers, which have seen in an explosion of growth over the past decade. If you have been reading about the deployment of AI algorithms, data centers are a critical component of that. With that said, below are three reasons SMCI stock remains a great stock play on AI.
SMCI’s edge has been to quickly deploy AI products
Generative artificial intelligence careened into the social zeitgeist in late 2022 with the public release of OpenAI‘s ChatGPT. The power and depth of this generative AI platform and others that spawned after its release incited a rise in investment into AI-enhanced products.
To deploy such technologies, however, advanced infrastructure solutions are required. That’s where a relatively small company like Super Micro Computer comes in. Founded in the early 1990s, Super Micro has spent years designing server products and network devices to make data centers efficient nexuses of processing power.
Close ties with chipmaker Nvidia have given Super Micro an edge on competitors like Dell (NYSE:DELL) and Hewlett Packard (NYSE:HPE) in terms of rapid deployment of AI products such as the high-power H100 and H200 GPUs as well as the GPU interconnects they necessitate.
Analysts have noted Super Micro’s efficient production capabilities allow it to “manufacture, assemble, test and ship a server” rack in just a few weeks. Market-watchers and analysts also credit the firm with having the “widest” product portfolio, allowing it to quickly service enterprises that leverage new GPUs from Nvidia or its chip-making competitors.
To help facilitate power efficiencies for data centers, Super Micro offers best-in-class cooling systems, which help to offset the high temperatures that advanced AI chips tend to reach once in use.
The firm’s earnings seasons are marked by strong growth
Given Super Micro’s unparalleled position in its respective end markets, the server hardware firm enjoyed strong earnings growth in recent quarters. The firm’s second-quarter earnings print for fiscal year 2024, ended Dec. 31, reported quarterly revenue of $3.7 billion, representing growth of more than 103% on a year-over-year basis and 73% growth on a sequential basis. Demand for AI computer products as well as Super Micro’s IT solutions propelled the firm’s financial figures to historic heights.
Third-quarter results for fiscal year 2024, which ended on March 31, were also astounding. Super Micro reported net sales of $3.8 billion, nearly tripling from the same period in 2023.
While there is certainly a customer concentration risk for investors holding SMCI, the company’s unfettered growth is jaw dropping.
Despite sizable gains, SMCI has a great trading multiple
Now it’s time to run through Super Micro Computer stock’s valuation metrics, and many investors might be surprised. Despite its share price skyrocketing nearly 250% in 2023, SMCI remains relatively undervalued to some other large tech firms, especially AI chipmakers like Nvidia or Advanced Micro Devices (NASDAQ:AMD). In 2024, SMCI has risen 216%, yet its forward price-to-earnings ratio is around 26.3x forward earnings.
In a stock market where technology multiples have become increasingly stretched, Super Micro Computer stock does look like a bargain. With the AI craze unabated, Super Micro’s top-line and earnings growth will likely continue to crush estimates, which could lead to more gains for current shareholders.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
