The artificial intelligence (AI) revolution is in full swing, and according to one Wall Street analyst, things don’t seem to be slowing down anytime soon for one extremely well-positioned company.
While most investors are gravitating towards the chip leader Nvidia (NASDAQ: NVDA) at the moment, AI is and will continue to collect other market winners. In fact, one S&P 500 AI company has even outperformed Nvidia this year. And despite this stock’s impressive performance in 2024, one Wall Street analyst predicts another 70% rise.
Super Micro Computer has beaten Nvidia and is ready for a liquid cooling explosion
This year, server-creator Super Micro Computer (NASDAQ: SMCI) it’s already up 212%, easily outpacing Nvidia’s impressive 149% year-to-date gain.
Supermicro has undoubtedly benefited from a close partnership with Nvidia as a preferred server partner. However, the company has also gained market share thanks to its in-house engineering capabilities.
Supermicro’s strategy of building servers from “building block” parts allows for rapid customization and large scale while also saving customers money. With building block architecture, parts of a server are easily exchanged and upgraded rather than replacing the entire unit.
Additionally, its building block architecture and close relationship with Silicon Valley technology companies generally allow Supermicro to build custom servers faster than rivals. With so many companies falling over themselves to build advanced AI infrastructure as quickly as possible, it’s no wonder customers are flocking to Supermicro’s solutions.
Additionally, Supermicro’s long-standing ethos of resource-saving and energy-efficient design has come to the fore in the AI era. Artificial intelligence chips require a large amount of power and must dissipate a lot of heat. To further help reduce power costs, Supermicro is now rolling out its own direct liquid cooling (DLC) technology.
DLC technology has been around for decades. However, because it is an added cost and can take a long time to deploy in a data center, it has only garnered about 1% of the data center market.
However, AI servers are becoming extremely power intensive and will soon require DLC compared to air cooled racks. DLC data centers limit the need for extensive air conditioning systems, saving energy and space within the data center and thus allowing for even denser server clusters.
From its market share of just 1%, CEO Charles Liang expects a wave of DLC deployments to account for 15% of Supermicro’s shelves this year and 30% next year. According to Liang, Supermicro can deliver DLC solutions within weeks today, and deploying DLC can help reduce data center energy usage by up to 40%.
So despite the company’s 200% increase in revenue last quarter, DLC’s benefits to customers should help keep the company’s growth and margins high for the foreseeable future.
Loop Capital thinks Supermicro will go to $1,500
Over the past few years, Supermicro has routinely beaten even the best analysts’ expectations. But with this year’s admission to the S&P 500 Index, many other Wall Street analysts have started covering the stock.
One of the best is tech-focused research shop Loop Capital. In April, Loop analyst Ananda Baruah raised his price target on Super Micro Computer from $600 to $1,500 a share.
Explaining the growth, Baruah correctly noted that Supermicro has developed a reputation as “a growing leader in the need for complexity and scale” for AI deployments. Additionally, Baruah sees Supermicro’s speed and agility as a key factor, elaborating, “While it’s not really possible to know the size of these wins or the timeframe of the deployments, there has been an overall dynamic of the deployment industry in faster feet compared to slower ones.”
To get his estimate, Baruah sees Supermicro earning between $50 and $60 in the 2026 fiscal year, ending in June 2026, on revenue between $30 and $40 billion. That compares with estimates of nearly $15 billion in revenue and $24 billion in fiscal 2024, which ends today, June 30.
With that kind of growth and earnings power, Baruah thinks Supermicro can maintain a price-to-earnings (P/E) ratio of 25 to 30, well into 2026. So 30 times $50 or 25 times $60 takes one to its target of $1,500.
Supermicro may have an advantage over Nvidia
While Nvidia is the king of AI chips today, the company will also get an onslaught of competition from other processor companies and the cloud giant’s custom ASICs (application-specific integrated circuits). However, Supermicro’s servers can host any type of AI chip.
Thus, Supermicro should see continued growth and profits on its side, regardless of which AI chip wins the day or even if the profits are spread among several chipmakers. That makes the stock a solid buy today, even after its impressive year-to-date gains.
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Billy Duberstein and/or his clients have positions in Super Micro Computer and have the following options: short calls Jan 2025 $1,840 Super Micro Computer Feb $110 Jan 2025 Super Micro Computer Feb $125 Jan 2025 short Jan 2025 $130 on Super Micro Computer, short Jan 2025 $280 on Super Micro Computer and Feb $85 on Jan 2025 on Super Micro Computer. The Motley Fool has positions on and recommends Nvidia. The Motley Fool has a disclosure policy.
1 Best Artificial Intelligence (AI) Stocks to Buy Before They Go Up 70%, According to Loop Capital was originally published by The Motley Fool
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