To make their shares more affordable and liquid, companies have often implemented stock splits. Stock splits increase the number of shares outstanding, but don’t change the underlying value or fundamentals of the company. Nevertheless, stock splits are often associated with positive price action in the shares.
Recently, thanks to the searing rally in artificial intelligence (AI) and semiconductor stocks, some high-profile companies have opted for stock splits, including Nvidia (NVDA), Broadcom (AVGO), and Lam Research (LRCX).
One potential addition to this list, according to rising speculation, could be Super Micro Computer (SMCI), the Silicon Valley-based designer, developer, manufacturer, and seller of energy-efficient, high-performance server solutions based on the x86 architecture.
Fueled by the demand for its full rack scale solutions, SMCI stock has soared more than 4,000% over the past five years, but demand for the shares continues to rise. In 2024, the stock is up 185.7% on a YTD basis to lead the S&P 500 Index ($SPX) higher. After starting the year as a Russell 2000 Index (RUT) component, SMCI now commands a market cap of $45.4 billion, and trades at a share price north of $800.
So, what’s driving the massive growth for SMCI? Let’s have a closer look.
The Thriving AI Server Market
The AI server market is expected to reach a staggering $177.4 billion by 2032, reflecting a compound annual growth rate (CAGR) of 18% between 2024 and 2032. This growth is fueled by the ever-increasing demand for data storage capacity in data centers, with IDC predicting an 18.5% CAGR for data center storage from 10.1 zettabytes (ZB) in 2023 to 21.0 ZB in 2027, largely driven by AI.
Super Micro is well-positioned to capture a significant share of this market, with Bank of America (BAC) analysts expecting the company’s share to reach around 17% by 2026, up from 10% in 2023.
SMCI Hikes Revenue Guidance
Super Micro has grown rapidly over the years, as evidenced by its recent addition to the S&P 500. While its revenues have grown at a CAGR of 24.13% over the past 10 years, EPS has expanded at a CAGR of 36.70% over the same period.
In its fiscal Q3 of 2024, Super Micro reported net sales of $3.85 billion, more than triple the previous year’s revenue of $1.28 billion. Adjusted EPS jumped 329% over the same period to $6.65, comfortably outpacing the consensus estimate of $5.75. Super Micro’s EPS have topped expectations in four of the past five quarters.
SMCI closed the third quarter with a cash and equivalents balance of $2.11 billion, well above its short-term and long-term debt levels of $81.56 million and $85.65 million, respectively.
For the fiscal year ending in June 2024, the company raised its revenue guidance to a range of $14.7 billion to $15.1 billion. Super Micro will report its next quarterly earnings on Aug. 13.
Super Micro’s Competitive Edge
Super Micro’s growth over the years is a testament to its capability to customize its server offerings according to its customers’ needs. This gives Super Micro a competitive advantage, as the complexity of putting together many different components in a configuration for a specific application under time constraints is high enough to limit competition.
The company can do this because of its modular approach, which involves the use of pre-designed, compatible components that can be easily mixed and matched to create custom configurations using the latest technology. This results in rapid turnaround times, from first receiving the order to delivering the final product.
Super Micro’s strong relationships with key Silicon Valley component manufacturers provide a significant advantage. They collaborate closely with industry leaders like Nvidia to integrate cutting-edge AI chipsets, such as the recently announced Nvidia GH200 Grace Hopper superchips, into their server solutions. This positions Super Micro for early market entry with these powerful new technologies. Furthermore, Super Micro partners with other HPC leaders like AMD (AMD) and Intel (INTC), ensuring compatibility with a wide range of AI accelerators.
SMCI continues to partner with Big Tech leaders, as it was recently revealed by Tesla (TSLA) CEO Elon Musk that Super Micro, along with Dell (DELL), would provide servers for the supercomputer that his artificial intelligence startup, xAI, is building.
Liquid Cooling Adoption Set to Surge
SMCI’s sustainable growth efforts also position it well for the future. It was one of the first companies to use liquid cooling in servers, which it promotes as a green computing initiative. For the same computing power, liquid-cooling servers take up less space than air-cooled servers, reducing the real estate footprint of the servers, and effectively reducing capex if the customer owns the land containing the data center facility.
Notably, the heat generated by the chips in AI servers has increased by over 100%, and is expected to increase by another 100% within 2 to 3 years. Super Micro’s technology circulates cold liquid over a plate above the chip, reducing energy use by approximately 40% compared to traditional air cooling methods.