Decades of experience propel this artificial intelligence (AI) hardware specialist to new heights.
The speed with which artificial intelligence (AI) has spread over the last year has surprised many investors and triggered a change of caution in the ranks of the world’s most valuable companies. apple The throne was eventually usurped by microsoftcurrently tops the list as the only company with a market capitalization over $3 trillion. Nvidiais powered by industry-leading AI processors and has tripled in growth over the past year, taking the No. 3 spot behind Apple with $2.6 trillion. alphabet, Amazonand meta platform They are all major players in the AI revolution and members of this auspicious fraternity.
With a market capitalization of just $53 billion (as of this writing), it may seem like an exaggeration to suggest that; super microcomputer (SMCI -4.14%)The company, also known as Supermicro, could move into the $1 trillion club. However, the accelerating demand for AI-centric servers and the company’s decades of expertise suggest that Supermicro is a dark horse candidate in this race.
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star server
Supermicro has been developing customized server solutions for more than 30 years, but remained relatively unknown until the adoption of AI accelerated. It turns out that Supermicro has achieved quite a bit out of the bright spotlight.
Supermicro has built a reputation for providing highly customizable, energy-efficient, liquid-cooled rack-scale servers designed to handle the rigors of AI and hyperscale data centers. The company has strong collaborative relationships and works with all top AI chip manufacturers to ensure rack-scale server performance is the highest, while providing energy efficiency and the lowest total cost of ownership in the industry. We are proud of our partnership with Nvidia, Advanced Micro Devicesand intelamong others.
This is a winning strategy to fly AI-centric servers off the shelf. In the second quarter of 2024 (ending December 31st), Supermicro’s revenue increased 103% year over year to $3.7 billion, and its earnings per share (EPS) increased 85% to $5.10. Management expects continued triple-digit growth, raising its full-year outlook to $14.5 billion, representing 104% growth.
Management reports that Supermicro has grown five times faster than the industry average over the past 12 months, suggesting the company is taking market share from competitors. Northland analysts agree, saying the company has increased its market share to 11%, suggesting there is “plenty of room for future market share growth.”
The road to $1 trillion
Supermicro is in an enviable position among AI server manufacturers. The company’s small size allows it to be agile and has a long history of providing customized server solutions to businesses. Additionally, the strong and enduring relationships Supermicro has built with chip manufacturers provides a deep supply of processors used for internal tracking and AI. Despite these advantages and obvious opportunities, a lot has to go right for Supermicro to join the ranks of the billionaires.
According to Wall Street, Supermicro is expected to generate revenue of $14.7 billion in 2024, with a forward price-to-sales (P/S) ratio of approximately 3.6. Assuming a constant P/S, Supermicro would need to grow its revenue to about $275 billion annually to support its $1 trillion market cap. To be clear, the company is currently ramping up production to support its $25 billion in annual sales, so returns of this magnitude are still a long way off.
If the company can maintain triple-digit year-over-year growth, Supermicro could reach the $1 trillion market cap threshold by 2031. That said, the company is unlikely to maintain its current parabolic growth rate. By lowering the revenue growth assumption to 50%, Supermicro could: potentially By 2035, the market capitalization will reach $1 trillion.
There is reason to believe that strong demand for AI-centric servers will continue. bohua Analyst Ruplu Bhattacharya suggests that the data center market will grow at a compound annual growth rate (CAGR) of 50% over the next three years, and Supermicro’s revenue could grow even faster.
Nvidia CEO Jensen Huang is similarly bullish, suggesting that the installed base of data centers will double to $2 trillion over the next four to five years.
If Supermicro seizes even a fraction of that vast opportunity, it could soon join the $1 trillion club.
Suzanne Frey, an Alphabet executive, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Bank of America is an advertising partner of The Motley Fool’s Ascent. Danny Vena has held positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Super Micro Computer. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Bank of America, Meta Platforms, Microsoft, and his Nvidia. The Motley Fool recommends Intel and recommends the following options: Long January 2023 $57.50 calls on Intel, Long January 2025 $45 calls on Intel, Long January 2026 $395 calls on Microsoft, Short January 2026 $405 calls on Microsoft. call, and a May 2024 $47 short call. Intel. The Motley Fool has a disclosure policy.
