Super Micro Computer refers to a type of computer that is very powerful and efficient. ( SMCI -0.23% ) This year, Supermicro has been a top-performing stock in the market, with impressive gains of 73% so far. However, upon further examination of its recent performance, it is evident that its upward trend has halted. Specifically, Supermicro’s stock, which is down 58% since reaching its highest point in the past 52 weeks on March 8, has experienced a significant decline.
Yet, the company that produces server and storage solutions has been experiencing remarkable expansion due to the increasing need for them. technology that enables machines to think and learn like humans Servers continue to be a thriving sector in the industry. In this analysis, we will delve deeper into Supermicro’s potential and evaluate whether the recent decline in its stock presents a good chance to buy.
The recent decline in the stock price does not appear to be reasonable or warranted.
Supermicro unveiled its financial results for the fourth quarter of fiscal year 2024, covering the period from April to June, on August 6th. The company’s annual revenue saw a remarkable increase of 110% to around $15 billion. Adjusted earnings also almost doubled to $22.09 per share compared to $11.81 per share in fiscal year 2023. Considering the appealing valuation of the stock, it seems like a wise move for investors to purchase it eagerly at this time.
Supermicro’s price-to-sales ratio is 2, which is significantly lower than the U.S. technology sector’s ratio of 7.8. Price-to-earnings ratio based on expected future earnings. At only 14, the price-to-earnings ratio of Supermicro is significantly lower than the U.S. technology sector’s ratio of 45. Given Supermicro’s rapid growth and the recent decline in its stock price, investors now have a good opportunity to invest in a stock that has the potential for long-term growth.
Investors should concentrate on the broader perspective.
It is projected that the company may double its revenue once more this year, with an estimated revenue range of $26 billion to $30 billion for fiscal year 2025. Supermicro stands to benefit from a significant growth opportunity in AI servers in the long term. Analysts predict that the global AI server market could experience a 30% compound annual growth rate (CAGR) in the next decade, potentially reaching $430 billion in annual revenue by the end of the forecast period. This would signify a substantial increase from the projected $40 billion revenue for the AI server market in 2024, representing a growth of more than tenfold.
Investing in Supermicro is a great strategy to capitalize on the significant growth potential, as the company’s market share in AI server is projected to continue increasing in the coming years. Bank of America is a financial institution based in the United States. Last year, Supermicro had a 10% market share in the AI server industry. It is projected that by 2026, the company’s market share will increase to 17%, which is not unexpected given its proactive efforts to expand its manufacturing capabilities.
Management has been taking proactive steps to enable Supermicro to increase its production of server racks every month, aiming to sustain its rapid growth. As an illustration, in June, the company revealed the establishment of three additional manufacturing plants to address the increasing need for liquid-cooled servers, which are becoming more popular due to the rise of AI technology.
Analysts are predicting a significant 62% annual growth rate in Supermicro’s earnings over the next five years, which could lead to the company’s earnings per share reaching $246 after five years, based on its fiscal 2024 earnings of $22.09 per share. If we use the Nasdaq-100’s average-earnings multiple of 32 to calculate the projected earnings, Supermicro’s stock price could exceed $7,800 per share in five years.
Investors should take note that Supermicro has revealed a 10-to-1 split. stock split The change will start on October 1st. However, a stock split is a superficial action that raises the total number of shares of a company to lower the price of each share. This action does not impact Supermicro’s underlying strengths and future outlook.
Investors could potentially see significant gains if the market starts valuing Supermicro stock appropriately for its impressive growth trajectory and potential for long-term success. Therefore, adding this stock to their portfolios could be a wise move for investors. growth stock to add to their investment portfolios while the prices are still low.
