super microcomputer (NASDAQ:SMCI)Also called super micro, microsoft (NASDAQ: MSFT) Both companies have benefited from the long-term expansion of the artificial intelligence (AI) market. Supermicro develops high-end AI servers with: Nvidia‘s (NASDAQ:NVDA) Meanwhile, Microsoft is weaving OpenAI’s generative AI tools into its own cloud-based services.
Supermicro went public in March 2007 at $8 per share and a valuation of $229 million, but now trades at about $750 per share, giving it a market capitalization of $44 billion. . This massive increase would have turned a $10,000 investment into more than $940,000.
Supermicro is much smaller than Microsoft, which reached a market capitalization of $3 trillion earlier this year, and smaller than two of its larger competitors in the server market. hewlett packard enterprise (NYSE:HPE) and Dell Technologies (NYSE:Dell). But if Supermicro continues to fire on all cylinders, will it grow into a multi-trillion dollar AI giant like Microsoft by 2050?
How big will Supermicro get?
According to History-Computer, Supermicro is the world’s third largest server company with a 5% market share. Dell leads the market with 19% share, followed by HPE with 13% share. Grand View Research forecasts that the global server market will grow at a steady compound annual growth rate (CAGR) of 9% from 2023 to 2030.
Supermicro differentiates itself from slower-growing competitors by primarily making high-performance servers rather than low-to-mid-priced servers. The design partnership with Nvidia gave the company access to its top-tier GPUs ahead of other server manufacturers, giving it a competitive advantage that allowed it to take advantage of the explosive growth in the generative AI market.
Supermicro currently derives about half of its revenue from dedicated AI servers powered by Nvidia’s GPUs. american bank Supermicro estimates that it already controls 10% of the dedicated AI server market, and expects that share to rise to 17% within the next three years as the overall niche market grows by 150%.
Does Supermicro have a realistic path to $3 trillion?
From fiscal year 2007 to fiscal year 2020 (ending June 2020), Supermicro’s annual revenue grew at a CAGR of 17%. The company’s revenue declined 7% in FY2021 as the pandemic disrupted the global server market, but rose 46% in FY2022 and 37% in FY2023 as AI market growth accelerated. Analysts expect that from FY2023 to FY2026, sales will continue to increase at a CAGR of 42%.
Supermicro, which has tripled its sales this year, still doesn’t seem expensive at this point. Assuming the price-to-sales ratio remains stable, market capitalization could reach $61 billion by 2026, an increase of nearly 40% from current levels.
However, to reach Microsoft’s current market cap of $3 trillion by 2050 at the same price-to-sales ratio, Supermicro would need to generate $1 trillion in revenue. To achieve this goal, the company needs to grow at a CAGR of 18% over the 24 years starting in 2026.
While this may seem achievable compared to historical growth rates, Supermicro could face some unforeseen challenges by 2050. NVIDIA’s deepening relationships with Dell, HPE, and other server makers could help drive growth in the data center GPU market. The AI market could stall in the next few recessions, leading to Supermicro being revalued as a legacy server maker like HPE and Dell (both with less than 1x this year’s sales) rather than as a fast-growth stock There is a possibility that
Simply put, it would take Supermicro to hit home runs for the next 30 years to reach Microsoft’s current market capitalization. But even if Supermicro somehow becomes a $3 trillion stock by 2050, Microsoft’s value will probably be much higher than that.
focus on more realistic goals
Supermicro remains a great growth stock, but it’s pointless to compare the server maker to a diversified software giant like Microsoft. Microsoft has the world’s top PC operating system (Windows), the most popular productivity software suite (Office), and the world’s second largest software suite. -The largest public cloud platform (Azure). If Supermicro plays its cards right, it certainly has the potential to become a $1 trillion stock over the next few decades, but I doubt it will ever reach the point of matching Microsoft’s valuation.
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Bank of America is an advertising partner of The Motley Fool’s Ascent. Leo Sun has no position in any stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Microsoft, and Nvidia. The Motley Fool recommends Super Micro Computers and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Will supermicrocomputers be worth more than Microsoft by 2050?Originally published by The Motley Fool
