SMCI Stock: Too Late to Buy?

• December 2023 (Most recent)

• • Revenue: $3.66 billion (+103% YoY)
  • Income: $295.97 million (+68% YoY)

• • Revenue: $2.12 billion (+14% YoY)
  • Income: $157 million (+-15% YoY)

• • Revenue: $2.18 billion (+33% YoY)
  • Income: $193.57 million (+37% YoY)

SMCI’s Most Recent Earnings Report

To learn more about SMCI stock, I dug into their most recent earnings report – which they released on January 29th, 2023. Here are some of the main takeaways:

• Record demand for AI systems at rack scale
• SMCI has grown 5X the industry average over the past 12 months

One reason for SMCI’s outsized success is that it offers a one-stop shop for AI infrastructure. Specifically, its rack-scale plug-and-play IT and AI total solution. With this product, SMCI has the capabilities to optimize, validate, deliver, and service its rack clusters from its manufacturing facilities across the country. 

This all-in-one AI infrastructure solution makes SMCI very attractive for large tech companies like Google (Nasdaq: GOOGL) or Microsoft (Nasdaq: MSFT). This is because large companies usually prefer to partner with just one other company for most of their needs. It’s much easier to partner with just one company who offers everything, than 5 different companies who all offer different services. So far, SMCI has been this provider for Nvidia, AMD, and other major AI leaders.

Additionally, CEO Charles Liang also had this to say during the company’s earnings report, 

“While we continue to win new partners, our current end customers continue to demand more Supermicro’s optimized AI computer platforms and rack-scale Total IT Solutions.”

So, not only is SMCI winning new customers at a rapid pace. But, it’s experiencing more demand from its existing customers – an advantageous position to be in. So, does that mean you should buy SMCI? Let’s examine.

Is SMCI Stock Overvalued?

The quick answer is…not really.

Right now, investors who missed the AI runup are kicking themselves. In SMCI’s case, the company is reporting booming sales and the management team has lofty expectations. But, the stock has already surged 200% this year. So, SMCI is probably way overvalued by this point, right? Well, not necessarily.

Despite its incredible run-up, SMCI still only trades at a price-to-earnings ratio of 69 (at the time I wrote this). This means that investors are currently pricing in a decent amount of growth…but not insane growth. For reference, Advanced Micro Devices trades at a P/E of 334, and its revenue hasn’t grown nearly as fast as SMCI’s. SMCI has had impressive sales growth to help back its valuation.

One of the biggest red flags that an investor needs to watch out for is companies with a lot of hype, but few sales.

For example, the EV truck maker Rivian (Nasdaq: RIVN) generated tons of hype when it went public. The techy truck company promised to redefine the EV industry and had investors lining up to buy shares. At the time of its IPO, Rivian was worth tens of billions of dollars (if not hundreds, I kind of forget).

But, there was just one problem…Rivian had never delivered a truck. Slowly, investors realized this and Rivian’s stock has lost 90% of its value since going public. Fortunately, SMCI likely won’t share Rivian’s fate. This is because SMCI has the golden ticket: surging sales.

Riding the AI Wave

Yes, it’s true that SMCI has gotten a lot of hype over the past few months. But, it’s also backing this hype up with significant increases in sales. Plus, it doesn’t hurt that the company is in one of the fastest-growing and most significant industries, maybe ever.

 The AI wave is much different than the bubbles that we’ve seen in the past few years like NFTs or the Metaverse. This is because NFTs and the metaverse had few real-world applications. At the time, dozens of companies were talking about “building the metaverse.” But, this was never really a product that anyone really used or wanted. AI is the exact opposite of that.

Artificial intelligence already has significant real-world use cases. Tools like ChatGPT or Adobe Firefly (Nasdaq: ADBE) are genuinely mind-blowing. We’re at an inflection point where you can just sense that the world is about to change drastically very quickly – all because of AI. Now, exactly how the world is going to change is definitely up for debate. But, due to the real-world use cases of AI, it’s safe to say that SMCI’s sales will continue surging up and to the right over the coming months and years. For this reason, it’s not too late to buy SMCI stock.

I hope that you’ve found this SMCI stock forecast valuable in learning whether or not SMCI stock still has room for growth. If you’re interested in reading more, be sure to subscribe below to get alerted of new articles.

Disclaimer: This article is for general informational and educational purposes only. It should not be construed as financial advice as the author, Ted Stavetski, is not a financial advisor.