Super microcomputer (NASDAQ: SMCI) has become one of the most spectacular and surprising companies on the stock market over the past year. The company existed for decades in obscurity and its shares gained little traction for years after its 2007 initial public offering (IPO).
However, a key partnership with Nvidia was a game changer for Supermicro (as the company is commonly known). As a result, its stock is up 190% in the first half of this year. Given its massive gains, investors are right to wonder whether this momentum can continue into the second half of 2024.
The State of Supermicro
Supermicro is a technology hardware company known for producing energy-efficient and environmentally friendly technology products for the cloud, metaverse, and other applications. Its servers attracted the most attention, especially those equipped with Nvidia technology artificial intelligence (AI chips). Thanks to this partnership, its profits and stock price have grown exponentially.
As recently as four years ago, its stock was trading at around $24 per share. This year, its recent growth has been so spectacular that analysts are forecasting nearly $24 per share for Supermicro. net revenueUnsurprisingly, such improvements led to a 3,400% gain in the technology actionsPrice since 2020.
A study by Market.us seems to confirm this trend. It predicts that the AI ​​server industry will grow at a compound annual growth rate (CAGR) of 30% through 2033, transforming what was a $31 billion industry last year into a $430 billion industry by 2033.
Can growth continue?
Even Supermicro’s staunchest supporters shouldn’t expect another 3,400% gain over the next four and a half years. Although an additional gain of 190% in six months is far from guaranteed, this development is not excluded if we consider the financial data. Through the nine months of fiscal 2024 (ended March 31), its net sales of $9.6 billion increased 95% from year-ago levels. Its cost of sales grew at a slightly faster rate of 102%.
Thus, its net profit of $855 million increased by 92% over the same period. Furthermore, with consensus estimates pointing to a 102% increase in net income for the fiscal year, its earnings are growing fast enough for the stock to maintain a rapid growth rate.
Additionally, despite rising earnings and massive share price growth, its price-to-earnings ratio (PER) is 47 and its forward price-to-earnings ratio is 36. This is lower than some of the mainstays of fast-growing technology such as Nvidia and Amazonindicating that it could support the multiple expansions needed to drive the stock price much higher, perhaps enough to maintain the current growth rate for another six months.
Supermicro in the second half of 2024
Given the country’s economic and financial situation, a 190% increase in the second half of this year is a plausible scenario. Certainly, the market does not give any guarantees and, ultimately, investors should not expect a 190% increase by the end of 2024.
However, demand for the company’s servers is expected to continue to rise, likely enough to support near-triple-digit revenue and profit growth for the foreseeable future.
At its current valuation, a 190% increase in the stock price would give it an expensive, but not record-breaking, P/E ratio. So even if that ambitious target isn’t met, Supermicro could still generate meaningful returns over the rest of the year.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
Supercomputer stocks are up 190% so far this year. Can growth continue in the second half of 2024? was originally published by The Motley Fool
