HomeBusiness1 Artificial Intelligence (AI) Growth Stock to Buy Now and Hold Forever

1 Artificial Intelligence (AI) Growth Stock to Buy Now and Hold Forever

Let’s cut to the chase: Generative Artificial Intelligence (AI)’s ability to automate certain tasks and increase productivity has captured the attention of companies everywhere. Generative AI can draft original documents, summarize existing data, create presentations, and even write and debug computer code – and new use cases are discovered regularly.

Cathie Wood, the enigmatic founder of Ark Investment Management, has long focused on disruptive innovation, and her take on the potential of generative AI is eye-opening. “AI is going to enable the most dramatic increase in productivity in our history,” she said. “The productivity gains will be astonishing and shocking.”

There is one company at the center of this secular tailwind Super microcomputer (NASDAQ: SMCI), also known as Supermicro. The stock has been riding the AI ​​wave higher over the past year, but there could be much more to come.

A system administrator setting up a server network in a data center illuminated by neon lights.

Image source: Getty Images.

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Servers of the stars

While it may not be a household name, Supermicro has burst onto the scene in the past year as one of the leading suppliers of servers used in enterprise data centers, cloud computing and AI systems. The company offers a wide selection of servers and storage systems, from complete plug-and-play systems to modular components. Supermicro also offers customers a helping hand in installing and upgrading their computing infrastructure.

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The company has been developing advanced server and storage systems for more than thirty years. So when the opportunity presented by generative AI presented itself, Supermicro was there to answer the call.

Supermicro works closely with Nvidia, Advanced micro devicesAnd Intelincluding ensuring its servers have a steady supply of – and work seamlessly with – the latest and greatest AI-centric processors.

A huge and growing opportunity

Although AI has been around for decades, generative AI is the next big leap in technology. The aforementioned potential to vastly increase productivity sets the technology apart from its predecessors. Companies also want to gain an edge, and the opportunity to save time and money has all kinds of companies wanting to grab a piece of the pie.

Although estimates are a dime a dozen, no one can give a definitive value of the size of the market. Generative AI could represent a $1.3 trillion market by 2032, according to Bloomberg Intelligence. A more bullish view can be found in Ark Invest’s Big Ideas 2024 report, in which Cathie Wood suggests that the AI ​​software market alone could generate incremental spending of $13 trillion by the end of the decade. While the size of the market remains elusive, one thing is clear: the opportunity is significant.

Blockbuster results

Supermicro’s results illustrate these opportunities. For the second quarter of fiscal 2024 (ended December 31), Supermicro generated net sales of $3.66 billion, which increased 103% year over year and 73% sequentially. At the same time, adjusted earnings per share (EPS) of $5.59 represented an increase of 71%. The company noted that the record growth was driven by demand for rack-scale systems used for AI.

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Management expects the company’s growth spurt to continue. Supermicro forecasts third-quarter revenue between $3.7 billion and $4.1 billion, representing 205% year-over-year growth at the midpoint of its expectations. Earnings are also expected to rise, with adjusted earnings per share of approximately $5.61, up 244%. The company also raised its full-year revenue guidance to a range of $14.3 billion to $14.7 billion, up by at least 100%.

CEO Charles Liang addressed the continued demand, noting, “Overall, I am confident that this AI boom will continue for many more quarters, if not many years.”

Supermicro is chasing a total addressable market estimated at $25 billion. To meet the strong and growing demand, management has implemented the construction of two new production facilities near its headquarters in Silicon Valley, in addition to the production facility already set to be commissioned in Malaysia.

An attractive opportunity

Shares of Super Micro Computer have been growing like wildfire at the time of writing, up 766% in the past year. With gains of that magnitude, you might be tempted to believe that the stock has become quite pricey, but nothing could be further from the truth. Despite the parabolic rise, the stock still trades for just twice next year’s sales – the benchmark for an affordable stock.

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The low price, strong and growing demand for its products and long-term tailwinds from AI illustrate why Supermicro is well positioned to capitalize on this unique opportunity.

Should You Invest $1,000 in Super Micro Computer Now?

Consider the following before buying shares in Super Micro Computer:

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Danny Vena holds positions at Nvidia and Super Micro Computer. The Motley Fool holds positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and Super Micro Computer and recommends the following options: long January 2023 calls $57.50 on Intel, long January 2025 calls $45 on Intel, and short February 2024 calls $47 on Intel. The Motley Fool has a disclosure policy.

A Once-in-a-Generation Investment Opportunity: 1 Artificial Intelligence (AI) Growth Stock to Buy Now and Hold Forever was originally published by The Motley Fool

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