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Zacks Rank #1 (Strong Buy) stock Super Micro Computer Inc ((SMCI - Free Report) ), also known as Supermicro, is a San Jose-based technology company that designs and manufactures high-performance server and storage solutions. The company’s products are used various up-and-coming, high-growth industries, including enterprise IT, big data, cloud computing, internet of things (IoT), and artificial intelligence (AI).
Betting on Data Center Hardware
According to Next Move Strategy Consulting, the artificial intelligence market currently has a value of ~$100 billion and is expected to grow by a whopping 20x by 2030 to nearly $2 trillion! However, for investors, cashing in on the AI revolution is probably more complex than it may seem. “Chatbot” operators like Microsoft ((MSFT - Free Report) ) and Alphabet ((GOOGL - Free Report) ) will undoubtedly benefit if AI becomes even more widespread and adopted. Nevertheless, it is difficult to move the needle for these multi-trillion-dollar juggernauts. That’s where SMCI comes in – SMCI sells the “picks” to the proverbial AI gold rush through its data-center hardware necessary to run AI applications such as ChatGPT.
The AI Revolution is Driving Top and Bottom-Line Growth
Though a plethora of data center company’s benefit from the AI revolution, SMCI is best in class. Last quarter, earnings and revenue jumped by 34% year-over-year. After weathering the COVID-19 pandemic and global shortages, SMCI is beginning to separate itself from its peers in terms of its relative growth rate.
Image Source: Super Micro Computer Inc.
Are Supply Limitations a Concern?
Investment in AI is contributing to explosive demand for SMCI’s servers. However, shares pulled back in August mainly because the company could not meet that high demand. SMCI’s current server production is enough to generate a maximum of $15 billion in revenue annually, but with the addition of a new Malaysian production facility (which goes live in 2024), SMCI will be able to double its production. SMCI also benefits from its server partnership with the undisputed AI leader, Nvidia ((NVDA - Free Report) ). Though SMCI owns less than 10% of the server market currently, its coveted partnership with NVDA should help the company eat into competition such as Dell Technologies ((DELL - Free Report) ).
High Growth + High Efficiency: A Winning Combination
High earnings growth is only meaningful with strong operational efficiency. A high return on equity (ROE) indicates that management efficiently uses shareholder equity to generate profits. SMCI’s ROE of 35 dwarfs the S&P 500’s ROE of 25.
Image Source: Zacks Investment Research
Relative Strength + Small Float
In the stock market, trends tend to persist, and strength tends to beget strength. With that in mind, SMCI is in a league of its own. Shares are up 234% versus the S&P 500’s 11.4%. Furthermore, if SMCI continues to execute, investors should benefit from its tiny share float of 45 million shares. Stocks with a small float can gain a lot of momentum because a limited supply of shares makes it easier for demand to supersede supply.
Image Source: Zacks Investment Research
Bottom Line
Zacks Rank #1 stock Super Micro Computer is a leader in the AI industry – an industry expected to grow 20x by 2030. Despite challenges like supply limitations, SMCI’s recent earnings and revenues surged by 34% YoY, demonstrating its resilience. Look for SMCI to be much higher over the next 6-12 months.
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Bull of the Day: Super Micro Computer (SMCI)
Zacks Rank #1 (Strong Buy) stock Super Micro Computer Inc ((SMCI - Free Report) ), also known as Supermicro, is a San Jose-based technology company that designs and manufactures high-performance server and storage solutions. The company’s products are used various up-and-coming, high-growth industries, including enterprise IT, big data, cloud computing, internet of things (IoT), and artificial intelligence (AI).
Betting on Data Center Hardware
According to Next Move Strategy Consulting, the artificial intelligence market currently has a value of ~$100 billion and is expected to grow by a whopping 20x by 2030 to nearly $2 trillion! However, for investors, cashing in on the AI revolution is probably more complex than it may seem. “Chatbot” operators like Microsoft ((MSFT - Free Report) ) and Alphabet ((GOOGL - Free Report) ) will undoubtedly benefit if AI becomes even more widespread and adopted. Nevertheless, it is difficult to move the needle for these multi-trillion-dollar juggernauts. That’s where SMCI comes in – SMCI sells the “picks” to the proverbial AI gold rush through its data-center hardware necessary to run AI applications such as ChatGPT.
The AI Revolution is Driving Top and Bottom-Line Growth
Though a plethora of data center company’s benefit from the AI revolution, SMCI is best in class. Last quarter, earnings and revenue jumped by 34% year-over-year. After weathering the COVID-19 pandemic and global shortages, SMCI is beginning to separate itself from its peers in terms of its relative growth rate.
Image Source: Super Micro Computer Inc.
Are Supply Limitations a Concern?
Investment in AI is contributing to explosive demand for SMCI’s servers. However, shares pulled back in August mainly because the company could not meet that high demand. SMCI’s current server production is enough to generate a maximum of $15 billion in revenue annually, but with the addition of a new Malaysian production facility (which goes live in 2024), SMCI will be able to double its production. SMCI also benefits from its server partnership with the undisputed AI leader, Nvidia ((NVDA - Free Report) ). Though SMCI owns less than 10% of the server market currently, its coveted partnership with NVDA should help the company eat into competition such as Dell Technologies ((DELL - Free Report) ).
High Growth + High Efficiency: A Winning Combination
High earnings growth is only meaningful with strong operational efficiency. A high return on equity (ROE) indicates that management efficiently uses shareholder equity to generate profits. SMCI’s ROE of 35 dwarfs the S&P 500’s ROE of 25.
Image Source: Zacks Investment Research
Relative Strength + Small Float
In the stock market, trends tend to persist, and strength tends to beget strength. With that in mind, SMCI is in a league of its own. Shares are up 234% versus the S&P 500’s 11.4%. Furthermore, if SMCI continues to execute, investors should benefit from its tiny share float of 45 million shares. Stocks with a small float can gain a lot of momentum because a limited supply of shares makes it easier for demand to supersede supply.
Image Source: Zacks Investment Research
Bottom Line
Zacks Rank #1 stock Super Micro Computer is a leader in the AI industry – an industry expected to grow 20x by 2030. Despite challenges like supply limitations, SMCI’s recent earnings and revenues surged by 34% YoY, demonstrating its resilience. Look for SMCI to be much higher over the next 6-12 months.