What if Nvidia falls? "The most demonic AI stock" continued to rise by 14%, and has skyrocketed 11 times in the past year
When the "Seven Sisters" of U.S. stocks went out of flames, Nvidia fell to a record high, and chip stocks as a whole were under pressure, the demon wind set off by AI "upstart" Supermicro continued.
At the close of U.S. stocks overnight, Supermicro shares rose 14% to stand above the $1,000 mark, hitting a record high for the ninth consecutive trading day.
What's even more shocking is that Supermicro has soared by 250% since the beginning of this year, and has risen by more than 1,100% since the beginning of 2023, surpassing Nvidia to become the hottest "AI darling" in the stock market.
But at the same time, Supermicro stocks were heavily overbought, with the Relative Strength Index (RSI) as high as 99 on the 14th, putting pressure on its short-term trend. The RSI measures the magnitude and speed of price movements, and a value above 70 indicates that the stock is overbought.
Wall Street was even more optimistic after the earnings report was released
Supermicro's stock price surge is partly due to strong demand for its AI servers, and on the other hand, the market was pleasantly surprised by its recently released strong earnings report: both the fiscal second quarter (Q4 2023) results and the fiscal third quarter guidance exceeded analysts' expectations.
According to the financial report, Supermicro's revenue for the second fiscal quarter of 2024 was $3.66 billion, a year-on-year increase of 103.3%, higher than analysts' expectations of $3.26 billion, and adjusted EPS was $5.59, higher than analysts' expectations of $5.16.
For the fiscal third quarter, Supermicro expects net revenue of $3.7 billion to $4.1 billion, beating analysts' expectations of $3.07 billion, while for the full fiscal year 2024 (ending June 30), Supermicro raised its revenue guidance to $14.3 billion to $14.7 billion from $10 billion to $11 billion, higher than analysts' expectations of $13.8 billion.
What's more, Wall Street is now more optimistic about Supermicro's performance in the next fiscal year, expecting full-year revenue to be close to $20 billion, while its earnings will increase significantly from the level of $11.81 per share in fiscal 2023.
In its latest earnings call, Supermicro management noted that its ongoing capacity expansion could lead to its "annual revenue generation capacity of more than $25 billion," and as a result, analysts expect Supermicro's earnings to grow at an annual rate of 48% over the next five years.
Generally speaking, AI chips generate a lot of heat and consume a lot of electricity during the training process of large models. This is where the ultra-micro liquid-cooled server system comes in.
In May 2023, Supermicro launched liquid-cooled servers for NVIDIA's H100 chip, which claims to reduce power costs in data centers by up to 40% and, more importantly, "reduce direct cooling costs by up to 86% compared to existing data centers."
According to Mordor Intelligence, the liquid-cooled server market is expected to grow at an annual rate of 25% through 2029, and Foxconn expects that by 2027, Supermicro sales of AI server solutions may increase fivefold, reaching $150 billion in annual revenue.
In the eyes of Wall Street, this is enough to support Supermicro stock prices to continue to rise sharply in the long term.
5 years, $4590!
Fundamentally, if Supermicro's earnings do grow at an annual rate of 48% over the next five years, then its EPS could jump to $153 in five years.
Long-term valuations are also well below broader market levels, with Supermicro trading at a 5-year forward P/E ratio of 13x, well below the Nasdaq 100's forward P/E ratio of 30x.
Some analysts predict that if Supermicro's expected price-to-earnings ratio reaches 30 times after 5 years, then its stock price may jump to $4,590 based on its expected earnings after 5 years, which is more than 4 times the current stock price.
But in the short term, Supermicro shares seem to be peaking.
Earlier, BofA Securities analyst Ruplu Bhattacharya gave Supermicro a buy rating for the first time and set a price target of $1,040, just $36 short of Thursday's close.
This means that Supermicro has only 4% upside in the coming year.