Super Micro Computer: Is $10k Enough to Reach $1 Million?

Transforming $10,000 into $1 million is ambitious, demanding a remarkable 100-fold return on investment. Few companies can achieve this, but identifying the right stock can make the difference. Ideally, these stocks are inexpensive, trending positively, and carry manageable market capitalizations.

Super Micro Computer (NASDAQ: SMCI), also known as Supermicro, appears to meet these criteria. This firm is a player in the booming artificial intelligence (AI) sector, is attractively priced, and boasts a market valuation of $19.2 billion. Can Supermicro potentially help you turn $10,000 into $1 million? Let’s explore.

Supermicro’s Role in AI Computing Expansion

If Supermicro’s stock were to rise 100-fold, it would reach a market cap of $1.9 trillion. While this wouldn’t make it the largest company globally, it would place it among the top five. Such growth, albeit substantial, is not entirely out of the realm of possibility.

Supermicro specializes in server racks designed for high-performance computing, particularly housing Nvidia (NASDAQ: NVDA) GPUs. Effective configuration and cooling of these devices are critical for optimal performance, an area where Supermicro excels.

The company employs technologies like direct liquid cooling (DLC) that enhances cooling efficiency and condenses hardware into smaller spaces. This technology reportedly contributes up to 40% in energy savings and 80% in space savings, thus lowering both operating and construction costs.

Given the AI surge, management estimates a revenue run rate of $50 billion, building on the $20 billion generated over the past year. However, this growth still isn’t sufficient for Supermicro to achieve the astronomical returns many investors seek.

Even as part of the AI investment trend, many are favoring Nvidia, which produces high-margin products. In contrast, Supermicro faces intense competition with thinner margins, further complicating its growth potential. If Supermicro were to reach a $2 trillion valuation, it’s likely Nvidia would also see its stock surge, given that many of Supermicro’s servers house Nvidia GPUs. This scenario stretches credibility, particularly given Nvidia’s current $2.8 trillion market cap.

Just because Supermicro may not achieve the potential for a 100-fold return doesn’t imply it lacks investment merit. So, is Supermicro currently a buy?

Understanding Supermicro’s Low Pricing

As stated, Supermicro’s stock is indeed cheap, trading at just 13.2 times forecasted earnings.

SMCI PE Ratio data by YCharts; PE = price to earnings.

The stock is considered cheap, especially compared to the S&P 500 (SNPINDEX: ^GSPC), which trades at approximately 21 times forward earnings. Several factors contribute to this discount.

A major issue is that differentiation among competitors in Supermicro’s industry is minimal. Thus, the company’s stock lacks a premium. Additionally, previous allegations of accounting irregularities, though later resolved, have left a negative mark on investor sentiment and led to caution around the stock.

Moreover, the company’s execution hasn’t always met expectations. In its fiscal third quarter (ended March 31), management revised sales projections downward to about $4.5 billion, down from an earlier range of $5 billion to $6 billion. The delay in customer decisions is cited as a reason for this reduction, but it raises some concerns regarding business stability.

Given these factors, it may be prudent for investors to steer clear of Supermicro. Alternatives like Nvidia, which provide stronger alignment with the trends affecting the industry, could be more attractive.

Should You Invest $1,000 in Super Micro Computer Now?

Before purchasing stock in Super Micro Computer, it’s important to note:

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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.