The artificial intelligence (AI) revolution is in full swing, and according to one Wall Street analyst, things don’t appear to be slowing down anytime soon for an extremely well-positioned company.
While most investors look to the market leader Nvidia (NASDAQ:NVDA) Right now, AI is and will continue to create other winners in the market. In fact, one S&P 500 AI company even outperformed Nvidia this year. And despite the stock’s impressive run in 2024, one Wall Street analyst predicts another 70% increase.
Super Micro Computer beat Nvidia and is ready for a breakthrough in liquid cooling
This year, the server manufacturer Super microcomputer (NASDAQ:SMCI) has already jumped 212%, far outpacing Nvidia’s impressive 149% gain since the start of the year.
Supermicro has undoubtedly benefited from its close partnership with Nvidia, its preferred server partner. However, the company has also gained market share thanks to its in-house engineering prowess.
Supermicro’s strategy of building servers from “commodity” parts enables rapid, large-scale customization while saving customers money. Thanks to the building block architecture, parts of a server are easily swapped and upgraded rather than having to replace the entire unit.
Additionally, the modular architecture and close relationships with Silicon Valley tech companies typically allow Supermicro to build custom servers faster than its competitors. With so many companies racing to build advanced AI infrastructure as quickly as possible, it’s no wonder customers are flocking to Supermicro’s solutions.
Additionally, Supermicro’s philosophy of saving resources and designing products with low power consumption has become evident in the AI era. AI chips require a huge amount of power and must dissipate a lot of heat. To help reduce energy costs even further, Supermicro is now deploying its own Direct Liquid Cooling (DLC) technology.
DLC technology has been around for decades. However, due to its added cost and time-consuming deployment in a data center, it only represents about 1% of the data center market.
However, AI servers are becoming extremely power hungry and will soon require DLC rather than air-cooled racks. DLC data centers limit the need for extensive air conditioning systems, saving both energy and space within the data center and thus enabling even denser server clusters.
Working from its market share of just 1%, CEO Charles Liang expects a wave of DLC deployments to account for 15% of Supermicro racks this year and 30% next year. According to Liang, Supermicro today can deliver DLC solutions within weeks, and deploying DLC can help reduce data center energy consumption by up to 40 percent.
So, despite the company’s 200% revenue growth in the last quarter, DLC’s customer benefits should help sustain the company’s hypergrowth and margins for the foreseeable future.
Loop Capital thinks Supermicro will hit $1,500
Over the past few years, Supermicro has consistently exceeded even the most optimistic analysts’ expectations. But with this year’s inclusion in the rankings, S&P 500 IndexMany other Wall Street analysts have begun covering the stock.
One of the most bullish is technology research firm Loop Capital. In April, Loop analyst Ananda Baruah raised his price target on Super Micro Computer from $600 to $1,500 a share.
To explain this increase, Baruah correctly noted that Supermicro has built a reputation as a “growing leader in the need for complexity and scale” for AI deployments. Additionally, Baruah sees Supermicro’s speed and agility as a key factor, saying, “While it’s not really possible to know the scale of these wins or the timing of deployments, there is general momentum in the industry of building deployments faster rather than slower. »
To arrive at his valuation, Baruah estimates that Supermicro will earn between $50 and $60 in fiscal 2026, which ends in June 2026, on revenue of between $30 billion and $40 billion. By comparison, estimates call for revenue of nearly $15 billion and $24 billion in fiscal 2024, which ends today, June 30.
With that kind of growth and earnings power, Baruah believes Supermicro can maintain a price-to-earnings (P/E) ratio of 25 to 30 even into 2026. So, 30 times $50 or 25 times $60 gets you to his $1,500 target.
Supermicro may have more advantage than Nvidia
If Nvidia is now the king of AI chips, the company should also receive a assault of competition other processor and custom ASIC (application-specific integrated circuits) companies from cloud giants. However, Supermicro’s servers can host any type of AI chip.
So, Supermicro is expected to continue to grow and gain market share, regardless of which AI chip wins or even if the victories are split among multiple chipmakers. That makes the stock a solid buy today, even after its impressive year-to-date gains.
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Billy Duberstein and/or its clients have positions in Super Micro Computer and have the following options: short January 2025 $1,840 calls on Super Micro Computer, short January 2025 $110 puts on Super Micro Computer, short January 2025 $125 puts on Super Micro Computer, short January 2025 $130 puts on Super Micro Computer, short January 2025 $280 calls on Super Micro Computer, and short January 2025 $85 puts on Super Micro Computer. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
1 Top Artificial Intelligence (AI) Stocks to Buy Before They Surge 70%, According to Loop Capital was originally published by The Motley Fool
