When many people think of artificial intelligence (AI) giants, they think of the chipmakers that power AI models. And these companies — like Nvidia — have seen their earnings and shares rise. But a player behind the scenes has also generated tremendous growth, thanks to the AI ​​boom. I’m talking about Super microcomputer (NASDAQ: SMCI)a maker of servers, storage systems, full-rack scale solutions and other key elements needed in data centers.
The company has been around for more than 30 years, but profits only started to rise a few years ago when customers started launching AI programs – and realizing the benefits of investing in Supermicro’s products. The company recently reported its first quarter of $3 billion, achieving more revenue in three months than it did in a full year in 2021.
Reflecting rising demand and profits, the share price followed suit, rising more than 2,300% in three years. What could be the future of this established player that has found a whole new source of growth thanks to the demand for AI? My prediction is that Supermicro can take inspiration from Nvidia, and this will be the company’s next big step.
Supermicro’s problem
First, this move could address a specific problem that Supermicro is currently facing. It’s great that the stock has risen, but this move has it trading at over $800 today. A few months ago, shares even rose above $1,000.
Often these levels make it difficult for a wide range of investors to get their hands on shares. Yes, you can buy fractional shares, but some brokers don’t offer them. And in certain cases, investors prefer owning an entire share to going the fractional share route.
Finally, the $1,000 level may pose a psychological barrier. Even if a stock is cheap from a valuation perspective, some investors will view it as if it is overpriced.
Nvidia has been in a similar situation, with its stock rising above $900 recently. In response, the company announced a stock split last week. The company says its motive is to make it easier for employees and investors to buy shares.
Stock splits do not change the overall market value of a company or the value of your investment. Instead, they offer current holders more shares, reducing the value of each individual share. This way, new investors can buy the shares at a lower price.
Following Nvidia
My prediction is that Supermicro will follow Nvidia’s lead, and the company’s next big move will be the announcement of a stock split. Supermicro has never split its shares before, but that doesn’t mean it’s against such an operation. Prior to the surge in demand for AI, Supermicro’s shares were trading at much lower levels – around $80 at the end of 2022 – so there was no need for a split.
Today, however, a stock split would make sense. First, as mentioned, it would help a wider range of investors add Supermicro to their portfolios. Second, it would be a signal that the company is confident in its future and believes its shares can start at a lower level and rise again.
Supermicro recently talked about record demand for its AI rack-scale systems – systems that include chips from leaders like Nvidia, IntelAnd Advanced micro devices. As these players continue to launch new and better-performing chips, Supermicro will launch products that incorporate these chips – and that should continue to drive sales.
In fact, Supermicro recently said it expects demand for AI to continue for several years. So it would be a good time to raise the price of each individual stock to a level that would attract more and more investors.
My prediction is that this will be Supermicro’s next big step. But whether this happens or not, the stock is still a top tech buy today, thanks to the company’s high growth in recent times and bright future prospects.
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Adria Cimino has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 relying on Intel and short May 2024 $47 relying on Intel. The Motley Fool has a disclosure policy.
Prediction: This Will Be Super Micro Computer’s Next Big Move Originally published by The Motley Fool
