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Super Micro Computer (SMCI), commonly known as supermicro, manufactures enterprise computer server hardware for cloud computing, artificial intelligence, data storage and telecommunications.
Advanced Micro Devices (AMD) projects that the AI chip market would go from $30 billion in 2023 to a $45 billion market in 2023 and then growing to a stunning $400 billion market by 2027. About half of those chips will be in AI servers, which means Super Micro will have a lot of room to grow if it executes well. Super Micro has also developed proprietary liquid cooling systems that will be required of more servers going forward in the AI age.
Revenue has received a boost from service providers investing in systems for generative artificial intelligence. The San Jose, California-based company works closely with AI chip providers including Advanced Micro Devices (AMD) and Nvidia (NDVA).
Super Micro has raised its full-year guidance to a range of $10 billion to $11 billion from the prior range of $9.5 billion to $10.5 billion. At the midpoint, this indicates a year-over-year revenue jump of 48% from fiscal 2023's top line of $7.12 billion.
That points toward an acceleration over the 37% revenue growth Super Micro delivered in the previous fiscal year. Super Micro also recently raised its global capacity to 5,000 server racks per month from the prior level of 4,000.
Barclays estimates that the company's prior capacity of 4,000 racks a month could support annual revenue of $12 billion to $15 billion. So, a 25% increment in capacity means that Super Micro's annual revenue potential should have ideally increased to a range of $15 billion to $19 billion. Moreover, the new facility that it is building in Malaysia could take its annual revenue capacity to more than $20 billion.
The company also has a highly motivated founder and CEO. According to a recent proxy report, Charles Liang, owns 14.3% of the company and plenty of options with a strike price of $450 a share.
Super Micro stock looks relatively inexpensive right now for the growth that it has been delivering. The company trades at just two times sales and 24 times trailing earnings. Super Micro has two larger rivals, Dell (DELL) and Hewlett Packard (HPE), but it is forecast to grow five to ten times faster. Furthermore, both Dell and HPE have relatively high debt whereas Super Micro has a net positive cash position.
This is an aggressive pick in a sector experiencing extraordinary growth.