Super Micro Computer, a leader in high-end server and storage systems, is perfectly poised to capitalise on this massive opportunity. As the world’s third-largest server provider with 5% market share, Super Micro is well-equipped to meet the growing need for powerful AI infrastructure. It is worth noting that the surge in high-performance server purchases stemmed from a confluence of factors: booming enterprise data centres, the rise of cloud computing and edge computing, the rollout of 5G networks, and the burgeoning field of artificial intelligence, all demanding ever-greater processing power.
What is Super Micro Computer Inc and why is it so successful?
Super Micro Computer, Inc. (Supermicro) is an American multinational corporation that specialises in computer hardware, particularly server solutions. Founded in 1993 by Charles Liang, A Taiwanese-American entrepreneur, the company initially focused on producing motherboards but expanded its product line to include server systems, chassis, power supplies, networking equipment, and storage solutions.
As of now Super Micro is a leading manufacturer of servers for data centres, cloud computing, enterprise IT, big data applications, and high-performance computing (HPC). With its integrated hardware-software platforms, the company empowers customers to deploy and run AI applications faster and more efficiently.
Super Micro stands out from the competition with its expertise in liquid-cooled server racks, a technology ideal for the growing demands of AI hardware. Liquid cooling, unlike traditional air cooling, efficiently removes heat from densely packed servers, making it ideal for high-performance computing environments like AI.
When is SMCI entering the S&P 500?
SMCI will be joining the S&P 500 on March 18, 2024. Super Micro scored a big win. The news drove the stock price to an 18% gain in just one session. Inclusion in the S&P 500 carries two key benefits for Super Micro. Firstly, it acts as a symbolic validation of the company's position as a major player in the current economy. This symbolic status could attract a broader spectrum of investors, potentially boosting stock purchases. For instance, risk-averse investors may find comfort in selecting a tech company meeting the S&P 500 membership criteria.
Secondly, fund managers responsible for overseeing portfolios mirroring the S&P 500 will need to acquire Super Micro shares to align with the index's composition accurately. This dynamic could generate positive momentum as these investors accumulate shares in the tech company, and their inclination to retain these shares can contribute to stability in Super Micro's stock value.
The company had its initial IPO in 2007 where SMCI went public at $8, and now its stock trades at about $1,163.00.
Super Micro initially went unnoticed post-IPO, appearing as a small player in the server market. Nevertheless, the company successfully established a specialised position by constructing servers tailored for demanding tasks, known for their high performance and efficiency.
According to Reuters the company sold 6.4 million shares and selling shareholders offered 1.6 million giving the company an initial market capitalisation of $229 million. The company's market capitalisation stands at $65.47 billion as of March 2024.
The company now operates on the Nasdaq under the symbol “SMCI”.
Super Micro's valuation has soared this year, with its stock price now trading at 53 times future earnings estimates, compared to just 15 earlier in 2024.
While the stock may appear relatively pricey at first glance, it might not be the case when you factor in the long-term potential in the field of AI. It's crucial to bear in mind that the current valuation considers earnings projections for the upcoming year but doesn't fully account for the earnings potential in the more distant future.
Consequently, its revenue experienced a compound annual growth rate (CAGR) of 17% from fiscal 2007 to fiscal 2020 (concluding in June 2020). Subsequently, in the period from fiscal 2020 to fiscal 2023, the pace of revenue growth escalated, reaching a three-year CAGR of 29%, driven by the expansion of the artificial intelligence (AI) sector.
To meet this surging demand, Super Micro leverages its partnership with Nvidia, a leader in high-performance GPUs crucial for AI processing. Numerous leading AI platforms worldwide, such as OpenAI's ChatGPT, rely on Nvidia's GPUs to handle intricate AI operations. This collaboration allows them to produce pre-built AI servers that are optimised for tackling complex AI tasks. The expansion of this market motivated numerous enterprises to invest in Super Micro's ready-made AI servers. Presently, the company distributes its premium servers to over 1,000 clients spanning across more than 100 countries.
It also fuels their impressive growth projections, with expected revenue rising 33%-47% in fiscal 2024. As highlighted by the CEO Charlers Liang in the latest quarterly report, the market is experiencing “unprecedented demand for AI and other advanced applications requiring optimised rack-scale solutions.
Chart: SMCI.US
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Source: xStation 5
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Earnings
As seen on the Super Micro’s website the company is on a record-breaking run! They recently achieved a milestone quarter, exceeding $3 billion in revenue for the first time. This is a staggering accomplishment, considering it surpassed their entire annual revenue just three years ago. The company's optimism is high, with forecasts predicting a fiscal year revenue surge of around 100%, reaching over $14 billion. And analysts suggest this explosive growth might just be getting started.
Second Quarter Fiscal Year 2024 Highlights
- Net sales of $3.66 billion versus $2.12 billion in the first quarter of fiscal year 2024 and $1.80 billion in the same quarter of last year.
- Gross margin of 15.4% versus 16.7% in the first quarter of fiscal year 2024 and 18.7% in the same quarter of last year.
- Net income of $296 million versus $157 million in the first quarter of fiscal year 2024 and $176 million in the same quarter of last year.
- Diluted net income per common share of $5.10 versus $2.75 in the first quarter of fiscal year 2024 and $3.14 in the same quarter of last year.
- Non-GAAP diluted net income per common share of $5.59 versus $3.43 in the first quarter of fiscal year 2024 and $3.26 in the same quarter of last year.
For the third quarter of fiscal year 2024 ending March 31, 2024, the Company expects net sales of $3.7 billion to $4.1 billion, GAAP net income per diluted share of $4.79 to $5.64 and non-GAAP net income per diluted share of $5.20 to $6.01. The Company’s projections for GAAP and non-GAAP net income per diluted share assume a tax rate of approximately 13.8% and 15.8%, respectively, and a fully diluted share count of 60.1 million shares for GAAP and fully diluted share count of 61.0 million shares for non-GAAP. The outlook for third quarter of fiscal year 2024 GAAP net income per diluted share includes approximately $28 million in expected stock-based compensation, net of related tax effects of $14 million that are excluded from non-GAAP net income per diluted share.
Cash flow used in operations for the second quarter of fiscal year 2024 of $595 million and capital expenditures of $15 million.
Final Thoughts
Consequently, Super Micro remains an attractive investment, driven by its promising long-term outlook and the belief that the demand for AI might be in its early stages. According to certain forecasts, the AI market could surpass $1 trillion by the decade's end.
Super Micro Computer Inc. has undergone a remarkable evolution, marked by significant milestones and substantial revenue growth. From achieving its first $3 billion quarter to forecasting a doubling of revenue in the current fiscal year, the company's trajectory demonstrates its position as a formidable player in the tech industry.
However, it's essential to acknowledge potential risks associated with investing. Market volatility, regulatory changes, and industry competition are factors that could impact investment outcomes. Therefore, individuals should educate themselves thoroughly about the company and market conditions before making any investment decisions. With its innovative solutions and expanding market opportunities, Super Micro appears poised for continued success, suggesting a promising future ahead.
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Source: xStation 5 
