finding the next great stock, Amazon Or, more recently, Nvidia (NASDAQ:NVDA), it's a dream. It's one stock that can generate portfolio- and life-changing returns, sometimes very quickly. super microcomputer (NASDAQ:SMCI) gave investors the best impression of Nvidia. The stock price has increased a whopping 750% in the past year.
Now, stock prices rarely rise this quickly. That's why it may seem far-fetched for me to predict that it will continue. Of course, success may not be a straight line. Still, as is well known these days, I believe that Supermicro could easily imitate his Nvidia's spectacular achievements over the years and skyrocket in the coming years.
Supermicro is becoming a market leader in its field
Supermicro's secret to success is simple. Unparalleled leadership in a rapidly growing industry equates to superior performance. Investors are already seeing this formula play out, which helps explain the company's impressive success. My predictions are based on the simple theory that spending on artificial intelligence (AI) will continue into the future.
First of all, the basics. Supermicro is a computing hardware innovator. It started with motherboards in the early 1990s, but now sells turnkey modular server systems to businesses. Do you know how to build a computer from scratch? Many companies do the same. So, as most people do, you turn to experts like Supermicro.
Supermicro's modular system easily scales to the size your company needs, and you can also build on it in the future as your needs grow. Similar to Nvidia's AI chips, customers are flocking to his Supermicro for their AI needs.
Management bases this on internal and industry data. gartner. Supermicro's revenue is expected to grow 103% year-over-year in the second quarter of fiscal 2024 (ending December 31, 2023) and up to 218% year-over-year growth this quarter.
fast growing industry
The million-dollar question, of course, is whether this is sustainable. According to those most connected to AI, it can and will be. OpenAI CEO Sam Altman recently made headlines when he called for expanding global chip production capacity, arguing that trillions of dollars need to be invested to do so. Nvidia CEO Jensen Huang predicted an additional $1 trillion in data center spending over the next few years.
If those projections are reasonably accurate, Supermicro, which just posted $3.7 billion in revenue in the second quarter, has more opportunities than it can handle. Ultimately, this will have to happen, and if demand cannot be supported, business could be lost to his Supermicro competitors. However, it is difficult to see how super microcomputers do not have every opportunity to meet these exponential expectations for long-term growth.
Surprisingly reasonable rating
Given the above circumstances, it is reasonable to expect the growth rate forecast to rise. It's already happening. Over the long term, analysts expect earnings to grow at an average annual rate of 48%. For a company currently experiencing triple-digit growth, this seems realistic.
Supermicro's forward P/E ratio of just 40x and its price-to-earnings ratio (PEG) of less than 1 indicate that the stock is still undervalued given its expected future growth potential.
There's an interesting psychological phenomenon called anchoring bias, where your mind fixates on the first number you see. In other words, investors look at how much Supermicro has risen over the past year and assume the stock must be expensive. To be fair, most stocks are expensive when they rise this much in one year.
However, data suggests that Supermicro may be an exception. Now, because we are predicting the future, there is investment risk. Nothing in life is guaranteed. However, data and recent financial performance point to a bright future for Super Micro Computer and its shareholders.
Should you invest $1,000 in a super micro computer right now?
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Justin Pope has no position in any stocks mentioned. The Motley Fool has positions in Amazon and Nvidia and recommends Amazon and Nvidia. The Motley Fool recommends Gartner and Super Micro Computer. The Motley Fool has a disclosure policy.
Prediction: This artificial intelligence (AI) stock could become the next Nvidia Original article published by The Motley Fool