When many people think of artificial intelligence (AI) giants, they think of the chipmakers powering AI models. And these companies — such as Nvidia — have seen their earnings and shares take off. But a behind-the-scenes player also has been generating enormous growth, thanks to the AI boom. I’m talking about Super Micro Computer (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 earnings just started to take off a few years ago as customers began launching AI programs — and realizing the benefits of investing in Supermicro’s products. The company recently reported its first $3 billion quarter, making more in revenue in three months than it did in a full year as recently as 2021.
As a result of soaring demand and earnings, the stock price has followed, climbing more than 2,300% in three years. What may be next from this established player that’s found a whole new source of growth thanks to AI demand? My prediction is that Supermicro may take inspiration from Nvidia, and this will be the company’s next big move.
Supermicro’s problem
First, this move could address one particular problem Supermicro faces right now. It’s great the stock has climbed, but this movement has left it trading at more than $800 today. A few months ago, the shares even soared past $1,000.
Often, these levels make it difficult for a broad range of investors to get in on stock. Yes, you could buy fractional shares, but some brokerages don’t offer them. And in certain cases, investors prefer owning a full share over going the fractional-share route.
Finally, the level of $1,000 may represent a psychological barrier. Even if a stock is cheap from a valuation perspective, some investors will look at it as if it’s too pricey.
Nvidia has found itself in a similar situation, with its stock soaring past $900 in recent times. In response to this, the company announced a stock split last week. It said its motive is to make it easier for employees and investors to buy shares.
Stock splits don’t change the overall market value of a company or the value of your investment. Instead, they offer current holders more shares, which lowers the value of each individual share. That way, new investors can buy the stock at a lower price.
Following Nvidia’s lead
My prediction is 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 stock before, but that doesn’t mean it opposes such an operation. Prior to the surge in AI demand, Supermicro’s shares traded at much lower levels — about $80 in late 2022 — so there was no need to launch a split.
Today, though, 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 signal the company is confident about its future and believes the stock could start off from a lower level and take off once again.
Supermicro has recently spoken of record demand for its AI rack scale systems — those that incorporate chips from leaders such as Nvidia, Intel, and Advanced Micro Devices. As these players continue to launch new and better-performing chips, Supermicro will launch products incorporating those chips — and that should continue to lift revenue.
In fact, Supermicro said recently it expects AI demand to continue for a number of years. So right now would be a great time to bring the price of each individual share down to a level that would attract more and more investors.
My prediction is this will be Supermicro’s next big move. However, whether this happens or not, the stock still makes a top technology buy today, thanks to the company’s high growth in recent times and bright future prospects.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Prediction: This Will Be Super Micro Computer’s Next Big Move was originally published by The Motley Fool
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