While it’s not without risk, Super Micro Computer’s (NASDAQ:SMCI) stock continues to be a great way to play the boom in artificial intelligence (AI).
Currently trading 32% below the 52-week high it reached in March of this year, Super Micro Computer’s stock looks vulnerable right now, especially after investors reacted badly to the company’s first-quarter financial results. However, the Q1 print showed incredible growth at the company and justifies the astounding 510% growth in the share price over the last 12 months. What’s more, the outlook provided by Super Micro Computer makes it likely that the stock will continue rising at a steady clip.
Surging Growth
Super Micro Computer’s stock fell 14% after the company issued its Q1 results. At first glance the drop might make investors think the company delivered a big miss with its print. Not so. The maker of high-efficiency servers that run AI microchips and semiconductors reported earnings per share (EPS) of $6.65 compared to $5.78 that was expected on Wall Street. Revenue for Q1 came in at $3.85 billion, which was below the $3.95 billion consensus forecast of analysts.
However, despite the miss, the company’s revenue was up 200% year over year. In the previous fourth quarter of 2023, Super Micro Computer reported 103% year-over-year revenue growth. That’s an incredible growth rate that should be the envy of every other company. Unfortunately, the meteoric rise in Super Micro Computer’s stock has brought with it a high bar for the company to jump with its earnings. The 200% revenue growth, while huge, seems to have left analysts and investors wanting more.
Super Micro Computer’s executive team said the company’s Q1 growth would have been greater had it not been for the shortage of a key component needed to make its in-demand servers. Management said that the supply chain continues to improve and should be better moving forward, enough that the company raised its forward guidance. Super Micro Computer now expects fiscal 2024 revenue of $14.7 billion to $15.1 billion, up from a previous outlook of $14.3 billion to $14.7 billion. The new guidance implies year-over-year revenue growth of 582% at the midpoint.
Unreasonable Expectations
A lot has happened with Super Micro Computer over the past year. SMCI stock skyrocketed after a strategic partnership with leading AI chipmaker Nvidia (NASDAQ:NVDA) was announced. The company’s market capitalization soared from $4.50 billion at the end of 2022 to nearly $50 billion today. Earlier this year, Super Micro Computer’s stock was added to the S&P 500 index, where it immediately became the top performing security, up 190% on the year.
Clearly, the lightning fast growth in Super Micro Computer’s stock has raised expectations to the point where they have become unreasonable. When year-over-year revenue growth of 200% leads to a 14% decline in the stock price, things have become distorted. However, the current pullback in the share price is likely a good thing as it will give analysts and investors time to reset their expectations and help SMCI stock rise at a more measured and sustainable rate moving forward.
Buy Super Micro Computer Stock
In many respects, a pullback and reset of Super Micro Computer’s stock was inevitable after its massive run higher over the last year. While the stock remains vulnerable to a bigger downturn in stocks related to AI, the risks are worth it given the rapid growth in the company’s sales and profits, and its future growth potential. With big rewards likely to continue, shareholders should feel comfortable taking a calculated risk on this company. Super Micro Computer’s stock is a buy.
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
