Look up in the sky! It’s a bird, it’s a plane, it’s…Supermicro?
Super Micro Computer (SMCI) – Get Free Report shares moved faster than a speeding bullet in premarket trading on Jan. 30 after it delivered surprising revenue, earnings, and guidance.
The stock gave back some gains during the day but still finished up 3.5% as analysts rushed to adjust predictions following its updated outlook. Following the move, Supermicro’s year-to-date return is now 80%, and its one-year return is a staggering 611%.
Supermicro’s returns are due to a string of upbeat earnings reports, including its latest, which beat Wall Street’s expectations and sent analysts scurrying to update predictions.
Supermicro shares are riding a wave of interest in artificial intelligence. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)
Supermicro’s sales soar on rising AI spending
Supermicro raised its fiscal second-quarter earnings and sales forecasts on Jan. 19 due to a strong market and end customer demand for its rack-scale, AI, and Total IT Solutions.
On Jan. 30, the company said that it had earned an adjusted $5.59 a share on sales of $3.66 billion in the quarter ended Dec. 31.
Analysts polled by FactSet had expected Supermicro earnings of $5.05 a share on sales of $2.8 billion.
Supermicro earnings and sales surged 71% and 103% from $3.26 and $1.8 billion one year ago.
Supermicro CEO: ‘AI boom to continue’
CEO Charles Liang told analysts that this was the company’s first quarter ever with over $3 billion in revenue, and, more importantly, this single quarter’s sales total surpassed Supermicro’s annual revenue for 2021.
Let me repeat. Last quarter, the company sold more than it did in the entirety of 2021.
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Liang added that the demand for AI inferencing systems—where live data is run through an AI model to make a prediction or solve a task –and mainstream compute solutions have also started to grow.
The exciting news is that he said, “Finally, we are entering an accelerating demand phase now from many more customer wins.”
“Overall, I feel very confident that this AI boom will continue for another many quarters if not many years,” he said, according to a transcript of the call. “And together with the related inferencing and other computing eco system requirements, demand can last for even many decades to come, we may call this an AI revolution.”
Supermicro issues show-stopping guidance
Liang also said Supermicro expects continued strength for the second half of fiscal 2024 and forecast revenue for the full fiscal year ending in June to be in the range of $14.3 billion to $14.7 billion, up from the prior outlook of $10 billion to $11 billion.
Wall Street analysts reacted well to the company’s results, with several firms boosting their share price targets, including Barclay’s George Wang, who cranked up his price target on Supermicro an eye-popping 74% to $691 a share.
“AI demand is still outstripping supply,” Wang wrote in a research note. “Once supply fully normalizes in next quarters, demand pipeline and expanded capacity support $25 billion-$30 billion in revenue over the next 2-3 years, vs. Dec Q annualized run rate of $15 billion.”
Wang, who has an overweight rating on the stock, said that a potential heat dissipation upgrade from air to liquid cooling could be another key transformation in data center design, which could benefit Supermicro.
Too hot to handle?
Liang has stressed the importance of the company’s “green computing mission” as AI takes up a lot of energy.
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Supermicro said in a white paper that since “AI and big data rise require massive amounts of data processing, heat is a byproduct of the high processing power.”
The company said switching from air conditioners to liquid cooling technology saves energy while reducing system fan operation saves additional power.
Wedbush analyst Matt Bryson raised the firm’s price target on Supermicro to $530 from $250.
“Super Micro delivered modest upside to the notable beat they preannounced earlier this month,” Bryson said in a note to investors. “Moreover, management guided for significant sequential growth through the end of their fiscal year to get to the midpoint of guidance.”
With management indicating backlog grew in the quarter, despite the strong sales result and with component lead times still being elevated, albeit with supply improving, Bryson said, “We expect [Supermicro] SMCI should have a very good handle on sales through this fiscal year and as such see limited risk to guidance.”
TheStreet’s Real Money Pro analyst Bob Byrne named Supermicro his 2024 stock of the year but warned of increased risk.
“As Super Micro Computer shares approach $600, it is time for investors to step back and consider their risk appetite,” he wrote. “Fundamentals can change very little even while the technicals accelerate. This is not uncommon in sectors where froth and momentum assume control.”
Byrne said he would not be quick to declare a correction is fast approaching, “but this is a situation where risk management is paramount.”
Real Money Pro’s James “Rev Shark” DePorre said, “The semiconductor sector has been red-hot, but can it keep running?”
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