Super Micro Computer: Poised for Growth Powered by AI Revolution and Liquid Cooling BreakthroughSuper Micro Computer: Poised for Growth Powered by AI Revolution and Liquid Cooling Breakthrough Key Takeaways: * Super Micro Computer (SMCI) has outpaced Nvidia in the AI market this year. * SMCI’s building block architecture and Silicon Valley connections enable rapid server customization. * The company’s energy-efficient design is well-suited for the growing energy demands of AI. * SMCI is rolling out direct liquid cooling (DLC) technology, which significantly reduces energy consumption in data centers. Growth Potential and Revenue Projections: * Loop Capital has a bullish $1,500 price target, citing SMCI’s expertise in handling the complexity and scale of AI implementations. * The analyst expects the company to generate $50-$60 billion in revenue by 2026, with a price-to-earnings ratio of 25-30. Competitive Advantage over Nvidia: * While Nvidia dominates AI chips, SMCI’s servers can accommodate any type of AI chip. * SMCI’s versatility makes it less vulnerable to competition and provides revenue regardless of which chipmaker prevails in the market. Investment Considerations: * Before investing in SMCI, investors should consider that it is not currently recommended by The Motley Fool Stock Advisor. * The Motley Fool suggests investing in their top 10 stocks, which have historically outperformed the S&P 500 by a significant margin. Risks: * The AI market is highly competitive, and the dominance of any particular chipmaker is uncertain. * The implementation of DLC technology may take time and involve additional costs for customers. * Economic conditions and industry trends can impact the growth trajectory of SMCI.
The artificial intelligence (AI) revolution is in full swing, and things don’t appear to be slowing down anytime soon for an extremely well-positioned company, according to one Wall Street analyst.
While most investors focus on the chip leader Nvidia (NASDAQ: NVDA) At the moment, AI is and will continue to be other market winners. In fact, an S&P 500 AI company even surpassed Nvidia this year. And despite this stock’s impressive run through 2024, one Wall Street analyst is predicting another 70% rise.
Super Micro Computer has defeated Nvidia and is ready for a liquid cooling breakthrough
Server maker this year Supermicrocomputer (NASDAQ: SMCI) is already up 212%, easily surpassing Nvidia’s impressive 149% gain so far this year.
Supermicro has undoubtedly benefited handily from working closely with Nvidia as its preferred server partner. However, the company has also gained market share thanks to its internal technical prowess.
Supermicro’s strategy of building servers out of “building block” pieces enables rapid, large-scale customization while saving customers money. With the building block architecture, components of a server can be easily swapped out and upgraded rather than replacing the entire unit.
Additionally, Supermicro’s building block architecture and close relationships with Silicon Valley tech companies mean it can generally build custom servers faster than its rivals. With so many companies racing to build cutting-edge AI infrastructure as quickly as possible, it’s no wonder customers are flocking to Supermicro’s solutions.
SMCI chart
SMCI data by YCharts.
Additionally, Supermicro’s long-standing ethos of resource-saving, energy-efficient design has emerged in the age of AI. AI chips require an enormous amount of energy and must dissipate a lot of heat. To further reduce energy costs, Supermicro is now rolling out its own direct liquid cooling (DLC) technology.
DLC technology has been around for decades. However, because it involves additional costs and can take a long time to implement in a data center, it has only captured about 1% of the data center market.
However, AI servers are becoming extremely energy intensive and will soon require DLC instead of air-cooled racks. DLC data centers reduce the need for extensive air conditioning systems, save both energy and space in the data center, and therefore enable even denser server clusters.
From its mere 1% market share, 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, today Supermicro can deliver DLC solutions within weeks, and implementing DLC can help reduce data center energy consumption by up to 40%.
Despite revenue growth of 200% in the past quarter, the benefits DLC offers to customers should ensure the company experiences tremendous growth in the near future and maintains its margins.
AI letters on chip in a server board.
Will Super Micro Computer go to $1,500 per share? Image source: Getty Images.
Loop Capital Thinks Supermicro Will Hit $1,500
In recent years, Supermicro has routinely beaten even the most optimistic analysts’ expectations. But with its inclusion in the S&P 500 Index this year, many more Wall Street analysts have begun covering the stock.
One of the most bullish is tech-focused research shop Loop Capital. In April, Loop analyst Ananda Baruah raised his price target for Super Micro Computer from $600 to $1,500 per share.
In explaining the increase, Baruah rightly noted that Supermicro has built a reputation as “an increasing leader in the need for both complexity and scale” for AI implementations. Furthermore, Baruah sees Supermicro’s speed and agility as a key factor, explaining: “While it is not really possible to know the magnitude of these wins or the timeframe of deployments, there has been an overall industry dynamic where deployments getting going faster instead of slower.”
To arrive at his valuation, Baruah expects Supermicro to earn between $50 billion and $60 billion in fiscal 2026, ending in June 2026, on revenue of between $30 billion and $40 billion. That compares to estimates of nearly $15 billion in revenue and $24 billion in fiscal 2024, which ends today, June 30.
With that kind of growth and earnings power, Baruah thinks Supermicro can maintain a price-to-earnings ratio of 25 to 30 even through 2026. So 30 times $50 or 25 times $60 would hit his $1,500 price target.
Supermicro could be more advantaged than Nvidia
While Nvidia is the king of AI chips today, it will also face a flood of competition from other processor companies and the custom ASICs (application-specific integrated circuits) of cloud giants. Supermicro’s servers, on the other hand, can house any type of AI chip.
So Supermicro should see continued growth and share profits regardless of which AI chip wins that day or even if the profits are split among different chipmakers. That makes the stock a solid buy today, even after impressive gains this year.
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Billy Duberstein and/or his 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 on Super Micro Computer, short January 2025 $280 on Super Micro Computer, and short January 2025 $85 on Super Micro Computer. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
