Nvidia Announces Positive Development for Super Micro Computer Stock

Nvidia Announces Positive Development for Super Micro Computer Stock

Stock prices of Super microcomputer (NASDAQ:SMCI) has taken off over the past year, gaining 1,180% as of this writing, and one of the main reasons behind the stock’s meteoric rise is the booming demand for NvidiaIt is (NASDAQ:NVDA) Artificial intelligence (AI) graphics cards.

Supermicro’s server rack-wide modular systems are used to mount AI-related graphics cards from Nvidia, as well as other chipmakers. As demand for Nvidia cards has increased, Supermicro has also witnessed a considerable increase in demand for its server solutions, leading to rapid growth in the company’s top and bottom lines.

Nvidia Announces Positive Development for Super Micro Computer Stock

SMCI Revenue Chart (Quarterly)

And now, a recent revelation from Nvidia CEO Jensen Huang suggests that Supermicro’s breathtaking growth will continue.

Nvidia’s adoption of liquid-cooled systems should give Super Micro Computer a boost

Nvidia’s current flagship AI graphics card, the H100, is said to perform well under air cooling. Additionally, the upcoming H200 processor should also perform optimally while being air-cooled, according to Tom’s Hardware. But at an economic summit at Stanford this week, Huang said one of Nvidia’s next-generation computers will be liquid-cooled.

Nvidia’s next-generation AI graphics processing units (GPUs) based on the Blackwell architecture are expected to consume 40% more power than existing offerings based on the Hopper architecture. Other claims suggest that Nvidia’s next-generation AI chips could even consume double the power of the current lineup. This is where liquid-cooled server systems will come into play.

At last year’s launch of what Supermicro claimed to be the first liquid-cooled server system for Nvidia’s H100 processors, the company said:

Energy savings for a data center are estimated at 40% using Supermicro liquid cooling solutions compared to an air-cooled data center. Additionally, up to 86% reduction in direct cooling costs compared to existing data centers can be achieved.

A review of third-party studies suggests something similar. Liquid cooling would only consume 20% of the energy required for air cooling. In other words, liquid cooling is known to significantly reduce energy consumption in data centers, while also helping to reduce operating expenses by using less water than air-cooled data centers .

Supermicro appears to have been ahead of the curve, as it took the initiative to launch liquid cooling solutions for Nvidia’s AI chips last year. The company is now working to increase manufacturing capacity for liquid-cooled server racks. During its January earnings conference call, Supermicro management noted: “By this June quarter, we will have dedicated high-volume capacity to manufacture 100 to 120 kilowatt racks with capacities liquid cooling, thus providing DLC ​​direct liquid cooling rack capacity. , up to 1,500 racks per month, and our total rack production capacity will then reach 5,000 racks per month.

The company’s focus on expanding its liquid-cooled server capacity will not only allow it to take advantage of Nvidia’s power-hungry AI chips, but also allow it to carve out a niche in the market rapidly growing liquid-cooled data centers as a whole. The liquid-cooled data center market is expected to generate annual revenue of $40 billion in 2033, up from just $4.5 billion last year, an annual growth rate of 24% over the the next decade.

As such, it won’t be surprising to see Supermicro maintain its healthy growth rate for a long time.

The valuation of the stock makes its purchase obvious

Even though Supermicro has seen a sharp decline in the stock market over the past year, its sales multiple stands at just 6.7. It’s cheaper than the technology sector price/sales ratio of 7.1. Additionally, Supermicro’s forward earnings multiple of 36 indicates a strong increase in its financial results, given its trailing earnings multiple of 84.

As the following chart suggests, Supermicro’s earnings are expected to take off significantly from last fiscal year’s $11.81 per share.

Graph of SMCI EPS estimates for the current fiscal yearGraph of SMCI EPS estimates for the current fiscal year

Table of SMCI EPS estimates for the current fiscal year

It’s also worth noting that analysts have increased their expectations for the company’s earnings growth, and there’s a good chance they’ll continue to raise those estimates given additional catalysts such as growing demand for cooled systems by liquid. That’s why now would be a good time for investors to buy this AI stock, as it appears capable of sustaining its superb long-term rally.

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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool Ranks and Recommends Nvidia. The Motley Fool has a disclosure policy.

Nvidia Just Announced Great News for Super Micro Computer Stock was originally published by The Motley Fool

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