If any company is ripe for a stock split this year, it’s Super Micro Computer (Nasdaq: SMCI). The stock has increased nearly threefold year-to-date thanks to its high-profile role in the AI revolution. Super Micro is benefiting from soaring demand for its AI servers, which use Nvidia chips (Nasdaq: NVDA), coupled with its liquid-cooled solutions for high-powered data centers supporting AI applications.
Super Micro is strategically positioned to benefit for the foreseeable future as companies pour billions of dollars into AI strategies.
Over the past 12 months, SMCI stock has rallied an even more impressive 1,000%-plus for a market cap of $45.8 billion, muscling its way into the S&P 500 index after previously keeping company with small-cap stocks. And fundamentals are strong.
Super Micro has been making a habit of record-breaking quarterly performance lately, most recently growing its fiscal Q3 revenue by 200% year-over-year to $3.85 billion with a gross margin of 15.5%. Net income grew more than fourfold year-over-year to $402 million in the quarter.
The San Jose-based company, which went public in 2007, continues to tap the equity markets for capital today. Wall Street couldn’t be more bullish on the stock, paving the way for a potential stock split for Super Micro Computer in 2024, which would mark the first of its kind for the company. Super Micro stock is white hot, but so too are investor expectations around anything AI, ensuring volatility along the way.
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Market Perception
The market perception of Super Micro stock is extremely bullish. Of the nearly a dozen analysts who cover the stock, seven rate the stock a buy while the others consider it a hold, according to Tipranks. With an average price target of $1,118, Wall Street believes the stock has 42% upside potential. At that level, it wouldn’t be long before Super Micro revisited its 52-week of $1,229 reached in March, representing a 64% increase from where it trades today.
With a PE ratio of approximately 44, Super Micro stock isn’t cheap. That might seem unsustainable for an ordinary stock. But AI companies like Super Micro are anything but ordinary, growing sales and profits hand over fist with no signs of slowing down, especially as OpenAI’s ChatGPT keeps raising the bar.
Revenue Streams and Innovation
You can’t deny Super Micro’s ability to innovate at a remarkably quick pace on the product front in the middle of the AI frenzy. Most recently, the company has delivered liquid-cooled solutions for businesses that are looking to bolster their AI performance. As a result of this technology, data center power consumption, which is intense, can be slashed by as much as 40%.
Super Micro is experiencing a bit of a disconnect between free cash flow and inventory, resulting in net cash of $350 million in fiscal Q3. But the company also recently lifted its Q4 revenue guidance to a range of $5.1 billion and $5.5 billion, as well as its full-year revenue, which is now projected between $14.7 billion and $15.1 billion.
Stock History
It’s hard to believe that only a few short years ago, Super Micro stock was trading for $10 per share. Now that it’s hovering near the $1,000 area, SMCI stock has become too rich for many investors.
Approving a stock split now could do wonders for the psychology around the stock since it’s entered the AI race. Even a three-for-one stock split at its peak of around $1,200 would price the stock at approximately $400 per share. That would seem like a bargain compared to where it’s currently trading despite the fact that a stock split doesn’t alter the value of a company.
The company’s fundamentals are likely to continue to support its rising stock price. Super Micro management hasn’t tipped their hand to any plans for a split. But during the last earnings call, they said the company is experiencing “accelerating demand” from customers as it prepares for an AI boom executives predict will continue for quarters, years and decades to come.
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