Outside of artificial intelligence chipmaker Nvidia, the best AI trade over the past 12 months has also been a lesser-known company by the name of Super Micro Computer (NASDAQ:SMCI) stock.
SMCI has seen sales and net income double over its last fiscal year due to demand for all kinds of advanced server hardware and equipment as large technology firms race to process large AI workloads.
SMCI’s share price has risen by more than 90% since the start of 2024 and prescient tailwinds could keep shares edging higher.
SMCI Stock Has Long-term Potential
Super Micro Computer has delivered stellar results throughout the year. The company began 2024 with record second quarter earnings results for fiscal year 2024, ended on Dec. 31.
Revenue climbed 103.2% from $1.8 billion to $3.7 billion. Similarly, net income rose 68% from $176.2 million in the prior fiscal period to $295.9 million. SMCI’s third quarter earnings results underscored demand for the data center hardware provider’s products.
Revenue skyrocketed more than 200% to $3.8 billion from the $1.3 billion SMCI stock delivered in the same quarter during the same period in the last fiscal year.
However, demand for liquid-cooled servers have been both a gift and a curse for the company.
Companies building data centers seek energy conservation because of energy-intensive AI servers.
Still, demand for AI server hardware has never been this robust and despite short-term headwinds to margins, the long-term opportunity for SMCI remains intact.
Wall Street’s Concern Over AI Spend Is Overblown
Any market watcher is probably aware of the significant sell-off the started the month of August. Investors are starting to scrutinize big tech companies over their capital expenditures related to artificial intelligence.
Alphabet, for example, delivered a solid earnings report, despite ad revenue in the firm’s YouTube division not coming in as many expected, yet investors were more worried about the company’s $13.2 billion capex figure that came in well above analysts’ estimates.
The point being, equities investors and traders are wondering when all of this spending will pay off, and Alphabet is not the only tech company under such scrutiny. Similarly, Nvidia has also taken a major hit due to concerns about AI “hype.”
I, for one, these large technology companies will likely continue to spend big on AI hardware because they see it as the next “big thing” and they’re preparing for the future.
As noted above, server hardware provider SMCI is not seeing any meaningful slippage in demand either. This means that despite the AI rout, companies like SMCI will likely remain highly investable in the long-term.
SMCI’s Valuation Remains Attractive
What makes Super Micro Computer such an attractive investment is its valuation. The company’s share price soared more than 246% in 2023 and has nearly doubled in the current year.
Despite these major price gains, SMCI only trades at 15.8x forward earnings. When you compare that to other AI flavor stocks, like Nvidia or AMD or even Palantir the difference is staggering.
For Super Micro Computer’s full fiscal year 2024, revenue more than doubled, growing 109% on a year-over-year basis.
According to Koyfin, Wall Street analysts are expecting revenues to balloon 78% during the company’s fiscal year 2025. That is all to say, SMCI’s growth story remains intact, and its valuation continues to sit in a sweet spot that is hard to ignore, especially for value investors.
On the date of publication, Tyrik Torres did not hold (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.
