Is Super Micro Computer an Unsung Hero of AI-Driven Growth?

October 23, 2023 at 06:13 AM EDT

supermicro logo at company headquarters

Although the AI mania has subsided somewhat, investors are still rewarding companies that are actually generating AI-related revenue, not coasting by on potential.

One company that's not as well known as AI titans like Nvidia Corp. (NASDAQ: NVDA) is Super Micro Computer Inc. (NASDAQ: SMCI).

Super Micro is an example of a little-known company that has potential for investors who want to dig a little deeper beyond just the big S&P 500 tech stocks or growth stocks.

Based on the strength of its AI infrastructure products, Super Micro is the price-performance leader within the computer hardware sub-industry.

MarketBeat's Super Micro Computer's earnings data show the company increased net income and revenue by 34% in the most recent quarter. That exceeded top and bottom-line views.

In the earnings news release, CEO Charles Liang said fiscal-year 2023 growth "validates our global leadership position in AI accelerated compute platforms."

"Unprecedented Demand for AI"

He added that the company continues to see "unprecedented demand for AI and other advanced applications requiring optimized rack-scale solutions."

Liang said he expects the company's growth momentum to continue.

Super Micro's value proposition is to bring innovation to the enterprise, cloud computing, AI and 5G infrastructure markets.

In filings, the company says it's transforming into a total IT solutions provider with server, AI, storage, Internet of Things and switch systems, in addition to software and services.

It also continues to deliver its bread-and-butter product lines of high-volume motherboard, power, and chassis gear.

Not Reliant on Any One Big Customer

During each of the past three fiscal years, Super Micro sold to more than 1,000 direct customers in over 100 countries.

The company also sells through indirect sales channels or resellers.

Super Micro said no single customer represents more than 10% of total sales. That should be a relief to investors, as it indicates that the company isn't overly reliant on any one company, which is a tremendous risk.

For the first quarter, which the company reports on November 1, the company guided toward net sales in a range between $1.90 billion and $2.20 billion and non-GAAP net income between $2.75 and $3.50.

For fiscal year 2024 ending June 30, 2024, the company expects net sales of $9.5 billion to $10.5 billion.

Wall Street Sees Earnings Up by 34%

Wall Street expects Super Micro to earn $15.82 per share in fiscal 2024, an increase of 34%.

MarketBeat's Super Micro Computer analyst ratings show a consensus view of "moderate buy" and a price target of $352.88, an upside of 41.27%.

The Super Micro chart shows you the stock's current base, forming below an August 7 high of $357. For a while, it appeared to be forming a handle, but the potential handle formation broke down and is currently too steep to qualify as such.

Nonetheless, the stock continues to outperform most of the market and is holding 32% above its 200-day moving average. Its recent slump was in tandem with the broader market, as well as with the Technology Select Sector SPDR Fund (NYSEARCA: XLK), which fell 2.80% the week ended October 20.

Heavily Weighted Component within Mid-Cap Index

Perhaps a more apt comparison is the SPDR S&P MidCap 400 ETF Trust (NYSEARCA: MDY).

The mid-cap index is down 10.93% in the past three months. Super Micro Computer is down 12.72 in that time.

With a market capitalization of $13.15 billion, Super Micro is the ninth largest component within the S&P 400 mid-cap index, although the weightings are much smaller than within the S&P 500.

For example, the most heavily weighted stock in the S&P 400 is Jabil Inc. (NYSE: JBL), which offers manufacturing and supply chain services to the tech industry.

Jabil has a weighting of just 0.78% within the MDY ETF, meaning that it's highly unlikely to have any impact, all by itself, on index performance.

Jabil is part of the electronics contract manufacturing sub-industry, which is one of the best-performing groups right now.

Super Micro's computer hardware sub-industry is also a top performer.

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Is Super Micro Computer an Unsung Hero of AI-Driven Growth?

"Unprecedented Demand for AI"

Not Reliant on Any One Big Customer

Wall Street Sees Earnings Up by 34%

Heavily Weighted Component within Mid-Cap Index

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