Shares of Super microcomputer (NASDAQ:SMCI) And Intuitive (NASDAQ: INTU) over the past fifteen years by 10,740% and 2,220% respectively. That price increase qualifies both companies as candidates for a stock split in 2024. More importantly, it tells investors that the companies must be doing something right. That kind of outperformance doesn’t happen by accident, and winners usually keep winning. Famed investor Peter Lynch once said, “You want to let the winners run.”
This is why Supermicro and Intuit are worthwhile investments regardless of whether the companies do stock splits this year or not.
Super Micro Computer: The market leader in artificial intelligence servers
Super Micro Computer builds powerful servers and storage systems for enterprise and cloud data centers. Products range from individual devices to full rack-scale solutions. The company sources chips, memory, connections and other hardware from suppliers such as Intel And AMDand has a particularly close relationship with it Nvidia.
Supermicro has distinguished itself through modular product development and internal engineering. In particular, it creates server building blocks that can be quickly equipped with the latest chips and hardware, and the design and production is largely carried out in-house. These qualities often allow Supermicro to bring new products to market before its competitors. Indeed, management expects to be the first to market with computing platforms featuring the latest graphics processing units (GPUs) from Nvidia Blackwell.
Another advantage of modular product development is that the server building blocks can be assembled in numerous combinations, so Supermicro generally offers a broader selection of server and storage products than its peers. In other words, the company offers its customers more flexibility in designing customized computing solutions.
Supermicro is by no means the leader in servers. Dell Technologies owns that title. But the company has gotten an early lead in the artificial intelligence (AI) server market and is quickly gaining market share. Analysts at KeyBanc estimate that the company will account for 23% of AI server sales by the end of 2024, up from 10% at the start of the year.
Supermicro reported strong financial results in the third quarter of fiscal 2024 (ended March 31). Revenue rose 200% to $3.8 billion due to particularly strong demand for GPU-accelerated AI platforms, and non-GAAP (generally accepted accounting principles) net income rose 308% to $6.65 per diluted share. Management also raised its full-year guidance, expecting revenue to rise 110% at the midpoint, up from 104%.
Wall Street expects Supermicro to grow earnings per share 47% annually over the next three to five years. If we divide that number into the current price-to-earnings ratio of 40.5 times non-GAAP earnings, the result is a very reasonable price-to-earnings-growth ratio (PEG) of 0.9. At that price, I think Supermicro is well positioned to outperform the S&P500 in the next three to five years.
Intuit: an artificial intelligence-powered expert platform
Intuit is the market leader in US tax preparation (TurboTax) and accounting software (QuickBooks). It also owns the personal finance platform Credit Karma and the marketing platform Mailchimp. Five years ago, Intuit began redefining itself as an AI-powered expert platform and doubled down on expanding its small business ecosystem to include adjacent services such as payroll and payment processing.
Since then, Intuit has launched live versions of TurboTax and QuickBooks, allowing users to connect with tax and accounting experts. The company has also introduced a generative AI assistant (Intuit Assist) that answers tax questions and makes recommendations in TurboTax, surfaces financial insights in QuickBooks, and helps small businesses optimize marketing campaigns in Mailchimp. Where necessary, Intuit Assist also directs users to supported and full-service tax preparation and accounting solutions.
Intuit looked strong in the third quarter of fiscal 2024 (ended April 30), beating expectations on the top and bottom lines. Revenue rose 12% to $6.7 billion, an acceleration from last year’s 7% growth. This was due to particularly good figures in the small business and self-employed product category, which also includes Mailchimp, QuickBooks and related services. Meanwhile, non-GAAP net income rose 11% to $9.88 per diluted share.
Management also raised its expectations for the full year. Sales are now expected to increase by 13%, from 11% to 12%, reflecting a more confident outlook across all product categories, especially in the small business and self-employed segments. In addition, non-GAAP earnings per share are expected to increase 17%, from 12% to 14%.
Wall Street expects Intuit to grow earnings per share 17% annually over the next three to five years. That makes the current valuation of 34.5 times non-GAAP earnings reasonable. Furthermore, shares currently trade at 32.1 times free cash flow, a discount to the three-year average of 37.3 times free cash flow.
Intuit has narrowly underperformed the S&P 500 over the past three years, but I think the stock can outperform its current valuation over the next three to five years.
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Trevor Jennevine has positions at Nvidia. The Motley Fool holds positions in and recommends Advanced Micro Devices, Intuit, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls to Intel and short August 2024 $35 calls to Intel. The Motley Fool has a disclosure policy.
Possible Stock Splits in 2024: Two Artificial Intelligence (AI) Stocks Rise 2,220% and 10,740% in 15 Years to Buy Now was originally published by The Motley Fool
