What have you done for me lately? Imagine tripling sales and quadrupling profits, but it still is not good enough. Well, that’s what happened to Super Micro Computer (NASDAQ:SMCI) after its fiscal third-quarter earnings report, which just missed sales expectations. Super Micro Computer stock plummeted.
Even though revenue surged to $3.85 billion from $1.28 billion last year and earnings more than quadrupled to $6.65 per share from $1.63 per share, the stock is 14% lower. Wall Street expected $3.95 billion in sales, but it fell short by 2.5%. Investors should see this as a buying opportunity.
AI Is the Future
There is good reason Super Micro Computer has been the best-performing artificial intelligence stock on the market this year (until now). It is the premier provider of AI-optimized computers, servers, networks, storage solutions and workstations for data centers and other industries.
Escalating demand for AI infrastructure enhances the opportunity for Super Micro Computer stock to maintain its trajectory. Because of partnerships with the likes of Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA), it can build essential components and systems that offer the latest innovations for its market.
The line of growth won’t be straight, but the business should continue at its torrid pace. As third-quarter results showed, they are.
Demand for Data Centers Will Fuel Growth
Data center demand offers one of the biggest growth channels. The industry is expected to double between now and 2030, growing from $302 billion last year to over $622 billion, a 10.5% compounded annual growth rate (CAGR).
Hyperscalers account for more than one-third of the global capacity of data centers.
The world’s four largest hyperscale platforms are Amazon’s (NASDAQ:AMZN) AWS, Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Cloud, Meta Platforms (NASDAQ:META), and Microsoft’s (NASDAQ:MSFT) Azure. They also happen to be the biggest drivers of AI demand as they seek out AI accelerators to boost their capacity.
Phenomenal expansion is ahead for 5G connections. Analysts forecast growth from 1.8 billion global connections in 2023 to 7.9 billion by 2028, becoming a $1 trillion market. The global cloud services market is also estimated to expand at a 17% CAGR between 2023 to 2032.
In short, there is a massive opportunity here for Super Micro Computer to capitalize on. Demand for its systems is outpacing the broader industry.
Money to Spare
Artificial intelligence will power all of these markets. It is what is driving the unprecedented demand for Super Micro’s rack-scale solutions. They offer advanced optimized applications, particularly those based on Nvidia’s HGX-H100 chips.
To finance its growth, it raised $600 million in an equity offering. And though that does dilute existing shareholders, it is a smart use of capital for the equipment maker.
That shouldn’t sour investors, even if it needs to tap the equity markets again to maintain or grow its market share, which it probably will. It should be noted management says it has other tools at its disposal that wouldn’t require further dilution.
Despite the phenomenal rise in its share price, Super Micro Computer stock was worth it. The reset the market just gave the shares is just what smart investors needed.
Thank You for the Gift
All this suggests that Super Micro Computer is primed for many more years of strong growth. Management says it has good visibility into demand for the next year or so, and everything remains white hot.
There will be ups and downs such as just occurred on the stock but that shouldn’t deter investors wanting to buy into a top-notch AI stock. Super Micro Computer checks all the boxes for a solid long-term investment.
The sort of shortsightedness of the stock market is a blessing in disguise. It ought to be a buying opportunity for investors with the appropriate long-term mindset.
— Rich Duprey
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Source: Investor Place