Is Super Micro Computer Stock on the Cusp of a Hypergrowth Phase?

As investment in artificial intelligence (AI) expands, so does the demand for highly efficient data centers. However, the advanced processors in these centers pose significant thermal challenges. With traditional air cooling nearing its capacity, liquid cooling emerges as a critical solution to effectively manage the escalating heat generated by these powerful chips, thereby guaranteeing reduced power usage, peak performance, and reliability. 

In light of this, Super Micro Computer, Inc. (SMCI) stands out as strategically positioned to capitalize on this trend. Speaking at Computex 2024, Super Micro's CEO, Charles Liang, predicted a rapid industry-wide progression toward a 30% adoption rate for direct liquid cooling (DLC) within the next one to two years, up sharply from the 1% adoption rate over the past three decades. 

This exponential growth trajectory will be akin to a "big hockey stick," per Liang, representing a significant evolution in the industry. That said, as Super Micro expands its efforts in liquid cooling technology, can the outperforming stock surge to new highs? Let’s take a closer look. 

About Super Micro Computer Stock

Founded in 1993, California-based Super Micro Computer, Inc. (SMCI) is a leading provider of high-performance server and storage solutions, specializing in application-optimized systems tailored to computational-intensive workloads. Valued at $42.9 billion by market cap, the company serves enterprise data centers, cloud computing, AI, and 5G and edge computing markets globally. Moreover, Super Micro champions green computing through its Resource-Saving Architecture and delivers exceptional software and services.

Following a historical rally over the past two years, the stock joined the S&P 500 Index ($SPX) this March, replacing Whirlpool Corporation (WHR). Shares of Super Micro have surged a staggering 199.5% over the past 52 weeks, easily overshadowing the broader SPX’s gain of about 25% during the same time frame. Plus, in 2024 alone, the stock is up 172.5% versus the SPX’s 13.6% gain on a YTD basis. 

Priced at 36.44 times forward earnings, the stock trades at a premium to its industry peers. However, considering the above-average 46.7% earnings growth projected over the next three to five years, the stock’s 0.70x price/earnings-to-growth (PEG) ratio appears reasonable. 

Super Micro’s Mixed Q3 Earnings

The company revealed its fiscal Q3 earnings results on April 30. Its net sales of $3.9 billion rose a whopping 200% annually, but narrowly missed Wall Street forecasts. However, its non-GAAP EPS of $6.65 jumped an impressive 308% annually, outpacing estimates by a 19.5% margin. As of March 31, the company’s total cash and cash equivalents surged to approximately $2.1 billion. 

Commenting on the company’s Q3 performance, CEO Charles Liang said, “Strong demand for AI rack scale PnP solutions, along with our team’s ability to develop innovative DLC designs, enabled us to expand our market leadership in AI infrastructure. As new solutions ramp, including fully production ready DLC, we expect to continue gaining market share.” 

Management subsequently raised its fiscal year 2024 revenue outlook, and now anticipates revenue between $14.7 billion and $15.1 billion. Moreover, non-GAAP EPS is projected to range between $23.29 and $24.09.  

Analysts tracking Super Micro project the company’s profits to reach $21.11 per share in fiscal 2024, up 94.4% annually, and grow by another 43.4% to $30.28 in fiscal 2025.

Super Micro Computer’s Ambitious Plans For Liquid Cooling Technology

At the Computex event, CEO Liang unveiled ambitious plans for the integration of liquid cooling technology, anticipating a significant surge in adoption. He announced that the company aims to incorporate DLC into 30% of the racks it ships next year, a notable increase from the current market share. With the capability to produce 1,000 DLC-equipped racks per month and drastically reduce lead times to just two to four weeks, Super Micro is poised to revolutionize the market. 

He further emphasized the pivotal role of DLC in addressing the challenges posed by high-power GPUs, foreseeing substantial energy savings and enhanced data center efficiency. By leveraging DLC's capacity to minimize energy consumption and optimize data center design, Super Micro aims to establish itself as a leader in the liquid cooling arena, sparking a wave of innovation in data center technology.

The company also unveiled cutting-edge liquid-cooled AI data center systems featuring Nvidia's (NVDA) latest chips. These products are tailor-made for Nvidia's AI enterprise software and are powered by the HGX B100, B200, and GB200 Grace Blackwell Superchip. "From cold plates to CDUs to cooling towers, our rack-scale total liquid cooling solutions can reduce ongoing data center power usage by up to 40%," said Liang.

What Do Analysts Expect For Super Micro Computer Stock?

Analysts appear optimistic about the stock’s prospects. Super Micro stock has a consensus “Moderate Buy” rating overall. Out of the 13 analysts covering the stock, eight suggest a “Strong Buy,” four recommend a “Hold,” and the remaining one gives a “Strong Sell” rating.

The average analyst price target of $980.73 indicates potential upside of 26.5% from the current price levels. However, the Street-high price target of $1,500, assigned by Loop Capital in April, suggests that the stock could rally as much as 93.6%.