Super microcomputer (NASDAQ:SMCI), also called Supermicro, offers high-performance servers that can withstand the demands of artificial intelligence (AI) processing. The company has become the poster child of the AI boom and is expected to report results for the third quarter of fiscal 2024 (ending March 31) after the markets close on Tuesday. AI investors will be nervous as Supermicro could provide insight into overall demand for AI.
The stock has gained a remarkable 828% since the start of 2023 and is already up 168% so far this year (as of this writing). Supermicro’s servers have provided the computing power necessary to run the massive Large Language Models (LLMs) that underlie generative AI, offering everything from modular components to complete, rack-scale solutions. Just last month his impressive performance secured him a place in the S&P 500 Index “representing the 500 most valuable companies” traded on US stock exchanges.
Supermicro has been at the forefront of the AI revolution, but the stock’s meteoric rise has investors wondering what’s next. Should investors buy the stock before third quarter results are released? Let’s take a closer look at what the evidence suggests.
What awaits Supermicro on Tuesday?
Demand for Supermicro’s AI-focused server solutions has been unprecedented, leaving Wall Street struggling to keep up with the rising stock price and increasing demand for its products. Supermicro’s partnerships with chipmakers are helping to drive this demand Nvidia, modern micro devicesAnd Intelamong other things, giving the company almost unlimited access to the chips needed for AI processing.
This helped the company meet much of the demand driven by generative AI and eclipsed analysts’ expectations last quarter. As a result, Wall Street has gradually increased its estimates over the past three months.
For the third quarter, analysts expect revenue to rise 211% to $3.99 billion and earnings per share (EPS) to rise from $1.61 to $5.84, an increase of 263%. These are high expectations, but not undeserved given Supermicro’s recent performance.
In its second fiscal quarter (ended Dec. 31), Supermicro’s revenue more than doubled to $3.66 billion and earnings per share rose 65%, despite heavy capital investments to meet future demand. Additionally, management expects revenue of $3.9 billion and earnings per share of $5.22 at the midpoint of its guidance.
This time, however, Supermicro has thrown a spanner in the works. In seven of the previous eight quarters, Supermicro issued a press release indicating not only the date of its financial release but also preliminary financial results. Last week, the company said it would report its third-quarter results on Tuesday – but a preliminary release was not imminent. There could be many reasons for the omission, but investors fear that Supermicro’s results could be lacking – and the stock plunged 24% on April 19 on the (lack of) news.
Should you buy Supermicro shares now or wait until after earnings?
For investors looking to buy shares in a company, trying to time the day-to-day dealings of the stock market is a fool’s errand. If you have a long investment horizon, you would do well to simply buy the stock and hold on to it for the future. Why? There is simply no way to know for sure how investors will react and whether the stock will rise or fall following Supermicro’s financial report.
There are many reasons to be optimistic in the long term. Supermicro is a leader in server design and has developed strong relationships with chipmakers, ensuring the company a steady supply of AI-centric processors.
In addition, according to industry experts, Supermicro is stealing market share from the competition. Barclays analyst George Wang posits: “[Supermicro] “The global market share is 7%, which means further market share gains are likely,” Wang said. He believes the company is gaining market share at the expense of larger competitors Dell Technologies And Hewlett Packard Enterprise.
Supermicro has grown five times the industry average over the past year and is investing heavily in its infrastructure that will support future growth. The company is expanding its manufacturing facilities, increasing its production capacity to enable annual sales of up to $25 billion.
The excitement over the adoption of generative AI has attracted many fair-weather investors and increased the volatility of many stocks in the space, and Supermicro is certainly not immune.
Estimates vary widely as to the potential size of the AI market, but one of the more moderate views puts the generative AI market at between $2.6 trillion and $4.4 trillion, according to global management consulting firm McKinsey & Company. dollars will have.
If the estimated range is anywhere near reality – and I believe it is – the runway ahead is long. Despite the significant increase, Supermicro stock currently sells for just 2x next year’s sales, which is an attractive price given the opportunity.
For those looking beyond next week, Supermicro offers all the signs of a solid long-term buy – even ahead of the company’s highly anticipated earnings and regardless of what happens after the report.
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Danny Vena holds positions at Nvidia and Super Micro Computer. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long $45 January 2025 calls on Intel and short $47 May 2024 calls on Intel. The Motley Fool has a disclosure policy.
Should you buy Super Micro Computer shares before Tuesday? was originally published by The Motley Fool