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1 unstoppable stock that could join Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta in the $1 trillion club

The speed at which artificial intelligence (AI) emerged last year surprised many investors and led to a changing of the guard among the ranks of the world’s most valuable companies. Apple was eventually dethroned by Microsoftwhich now tops the list as the only company that currently has a market cap of over $3 trillion. Nvidiapowered by its industry-leading AI processors, has tripled in the past year and now ranks third, behind Apple at $2.6 trillion. Alphabet, AmazonAnd Metaplatforms are all key players in the AI ‚Äč‚Äčrevolution and also members of this promising fraternity.

With a market capitalization of just $53 billion (at the time of writing), it may seem exaggerated to suggest that Super microcomputer (NASDAQ: SMCI), also known as Supermicro, could make a run at the $1 trillion club. However, the increasing demand for AI-focused servers and the company’s decades of expertise suggest that Supermicro is a dark candidate in the race.

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

Image source: Getty Images.

Servers of the stars

Although Supermicro has been creating custom server solutions for more than thirty years, the company operated in relative obscurity until the accelerated adoption of AI took off. It turns out that Supermicro has built quite a pedigree away from the glare of the spotlight.

Supermicro has built its reputation on delivering highly customizable, energy-efficient, liquid-cooled rack-scale servers designed to handle the rigors of AI and hyperscale data centers. The company has developed strong working relationships and works closely with all the top AI chip manufacturers to ensure its rack-scale servers are top performers while offering energy efficiency and the lowest total cost of ownership in the industry. It features partnerships with Nvidia, Advanced micro devicesAnd Intelamong other things.

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This is a winning strategy that will see AI-centric servers flying off the shelves. For the second quarter of fiscal 2024 (ending December 31), Supermicro’s revenue rose 103% year over year to $3.7 billion, while earnings per share (EPS) rose 85% from $5.10. Management forecasts triple-digit growth to continue, raising full-year expectations to $14.5 billion, which would represent 104% growth.

Management reports that Supermicro grew five times faster than the industry average over the past twelve months, suggesting the company is stealing market share from its rivals. Analysts at Northland agree, suggesting the company has increased its market share to 11%, leaving “plenty of room for future market share gains.”

The Road to $1 Trillion

Supermicro is in an enviable position among AI server makers. The company is small enough to be agile and has a long history of providing customized server solutions to enterprises. Additionally, the strong and lasting relationships Supermicro has built with chipmakers give the company great visibility and an abundant supply of processors used for AI. Despite these advantages and the obvious opportunities, a lot will have to happen before Supermicro can join the ranks of trillionaires.

According to Wall Street, Supermicro is poised to generate $14.7 billion in revenue by 2024, giving it a price-to-sales ratio (P/S) of around 3.6. Assuming the price-to-earnings ratio remains constant, Supermicro would need to grow its revenue to about $275 billion per year to support a market cap of $1 trillion. To be clear, the company is currently ramping up production to support annual sales of $25 billion, so sales of that size are still a ways away.

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If the company could continue its triple-digit annual growth, Supermicro could reach the $1 trillion market cap threshold by 2031. That said, the company is unlikely to maintain its current parabolic growth rate. If we lower the revenue growth assumption to 50%, Supermicro could do that possible reaching a market capitalization of $1 trillion by 2035.

There is reason to believe that strong demand for AI-focused servers will continue. BofA Analyst Ruplu Bhattacharya suggests that the data center market will grow at a compound annual growth rate (CAGR) of 50% over the next three years, and that Supermicro’s revenue could grow even faster.

Nvidia CEO Jensen Huang is also optimistic, suggesting that the installed base of data centers will double to $2 trillion over the next four to five years.

If Supermicro capitalizes on even a small portion of that enormous opportunity, the company will soon join the $1 trillion club.

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

Consider the following before buying shares in Super Micro Computer:

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena holds positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Super Micro Computer. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Bank of America, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft , and briefly May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

1 Unstoppable Stock That Could Join Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta in the $1 Trillion Club was originally published by The Motley Fool

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