Latest News

Prediction: This Artificial Intelligence (AI) Stock Could Be the Next Nvidia

0

S&P 500

5,137.08

+40.81(+0.80%)

 

Dow 30

39,087.38

+90.99(+0.23%)

 

Nasdaq

16,274.94

+183.02(+1.14%)

 

Russell 2000

2,076.39

+21.55(+1.05%)

 

Crude Oil

79.81

+1.55(+1.98%)

 

Gold

2,091.60

+36.90(+1.80%)

 

Silver

23.34

+0.46(+2.01%)

 

EUR/USD

1.0839

+0.0032(+0.29%)

 

10-Yr Bond

4.1800

-0.0720(-1.69%)

 

GBP/USD

1.2655

+0.0029(+0.23%)

 

USD/JPY

150.0640

+0.0800(+0.05%)

 

Bitcoin USD

62,935.38

+964.28(+1.56%)

 

CMC Crypto 200

885.54

0.00(0.00%)

 

FTSE 100

7,682.50

+52.48(+0.69%)

 

Nikkei 225

39,910.82

+744.63(+1.90%)

 

Finding the next great stock, like an Amazon or, more recently, Nvidia (NASDAQ: NVDA), is the dream — one stock that can generate portfolio- and life-changing returns, sometimes very quickly. Super Micro Computer (NASDAQ: SMCI) has given investors its best Nvidia impression. The stock is up a whopping 750% over the past year.

Now, a stock rarely goes up that much, that quickly. That’s why it might seem wild that I’m predicting it will continue. Of course, success may not be a straight line. Still, I believe Supermicro, as it is better known these days, could easily mimic Nvidia’s epic multiyear run and soar upward over the coming years.

Supermicro is becoming the market leader in its field

The recipe for Supermicro’s success is simple. Dominant leadership in a rapidly growing industry equals outperformance. Investors are already seeing the equation play out, which helps explain the stock’s remarkable success. My prediction is based on the simple theory that artificial intelligence (AI) spending will continue well into the future.

First, the basics. Supermicro is a computing hardware innovator. It began with motherboards in the early 1990s but today sells turn-key modular server systems to corporations. Do you know how to build a computer from scratch? Neither do many companies. So, like most would do, they turn to an expert like Supermicro.

Supermicro’s modular system can be easily scaled to the size a company needs and can be built upon in the future if needs grow. Like Nvidia’s AI chips, customers are flocking to Supermicro for their AI needs:

Image source: Super Micro Computer.

Management is basing this on its internal data and industry data from Gartner. Supermicro’s revenue grew 103% year over year in the second quarter of fiscal year 2024 (ended Dec. 31, 2023), and guidance is for up to 218% year-over-year growth in the current quarter.

A rapidly growing industry

The million-dollar question, of course, is whether this can last. According to the people most connected to AI, it can and will. OpenAI CEO Sam Altman recently made headlines for his call to expand global chip capacity, claiming a need to invest trillions of dollars for the cause. Nvidia CEO Jensen Huang predicted an additional $1 trillion in data center spending over the next several years.

If these predictions are remotely accurate, Supermicro, which just did $3.7 billion in revenue in Q2, is poised to have more opportunities than it can shake a stick at. Ultimately, this has to play out, and an inability to support demand could send business to Supermicro’s competitors. However, it’s hard to see how Super Micro Computer doesn’t have every opportunity to fulfill these skyrocketing expectations for long-term growth.

A surprisingly reasonable valuation

Given the abovementioned situation, it’s reasonable to expect growth estimates to rise. That’s happened already. Analysts are looking for earnings growth averaging 48% annually over the long term. This seems realistic for a company now growing at a triple-digit rate.

At a forward P/E ratio of just 40, Supermicro’s price/earnings-to-growth (PEG) ratio is less than 1, signaling that the stock is still a bargain for its expected future growth potential.

SMCI PE Ratio (Forward) Chart

There’s a fascinating psychological phenomenon called anchoring bias, in which the mind sticks to the first number it sees. In other words, investors see how much Supermicro has climbed over the past year and assume that the stock must be expensive. To be fair, most stocks are overpriced if they rise that much in a year.

However, data shows that Supermicro could be the exception. Now, there are investment risks because you are projecting things in the future. Nothing is guaranteed in life. However, the data and recent financial performance indicate a bright future for Super Micro Computer and its shareholders.

Should you invest $1,000 in Super Micro Computer right now?

Before you buy stock in Super Micro Computer, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Super Micro Computer wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

See the 10 stocks

*Stock Advisor returns as of February 26, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in 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 Be the Next Nvidia was originally published by The Motley Fool

1 Magnificent S&P 500 Dividend Stock Down 56% to Buy and Hold Forever

Previous article

Viking Therapeutics emerges as a strong weight loss drug player — or takeover target

Next article

You may also like

Comments

Leave a reply

Your email address will not be published. Required fields are marked *

More in Latest News