Supermicro (SMCI): Rapid Growth in AI Servers – Future and Stock Outlook

This site is a great place for me (@mifsee(2) has been working on company and stock analysis while learning privately.

This is only a record of my personal analysis and the contents may contain errors or information that differs from the actual situation. Please understand in advance when viewing this site.

Introduction.

With the proliferation of AI technology, especially advanced AI such as ChatGPT,NVIDIAThe AI semiconductor industry, led by the AI semiconductor industry, is experiencing remarkable growth. In this trend, demand for AI servers is growing rapidly, and super microcomputers (SMCIs) are attracting a lot of attention.

SMCI's stock price, which was around $100 in April 2023, exceeded $1,000 in February 2024, an astounding 10-fold (ten-bagger) growth in stock price in just less than a year. This growth rate stands out among AI-related stocks.

In March 2024, SMCI was named to the S&P 500 in recognition of its growth. This shows that SMCI's momentum is unstoppable.

This article will detail the performance of the Super Micro Computer (SMCI) business segment, its product environment, and its relevance to the overall market in an easy-to-understand manner for those not familiar with investment, finance, or financial results.

You can review SMCI's business activities and characteristics, as well as its future stock price outlook, as a reference.

What company and what business does SMCI do?

• Head Office LocationSan Jose, California, U.S.A.
• Year Established1993
• BusinessThe company is a leading developer, manufacturer, and marketer of server technology and innovative high-performance, high-efficiency computing technology.
• flagship productServer Systems, Server Boards, Storage Systems, Network Devices, Desktops/Workstations
• featureProvides products for a wide range of applications including: Enterprise, Data Center, Cloud Computing, High Performance Computing (HPC), Big Data, Storage, AI, etc.
• Green IT: Working to reduce customers' electricity costs and environmental impact by providing energy-efficient products.
• Global ExpansionWe operate in many countries and regions around the world, and our products are sold worldwide.

Super Microcomputer Corporation (SMCI) is engaged in the above mentioned businesses and is particularly well known for its server technology and high-performance computing technology.

What are SMCI's core products and services?

SMCI's products and services are designed to provide companies with the IT equipment they need to run their businesses, with services related to the following types

server system

A server is a large computer used to provide information on the Internet.
SMCI offers servers to meet a variety of needs, from general business use to high-performance servers for processing large amounts of data to specialized servers used for AI and deep learning research.

server board

The server board is like the "heart" of the server, where the CPU, memory, and other major components are installed.
SMCI offers a wide variety of server boards from which customers can choose according to their needs.

storage system

A storage system is a device for storing data.
SMCI offers high-performance storage systems that can store and retrieve large amounts of data at high speed.

network device

A network device is a device that connects computers and enables them to communicate with each other; SMCI provides network devices that enable high-speed communication.

Desktop/Workstation

Desktops and workstations are similar to ordinary personal computers, but are more powerful and used for specialized applications such as scientific and technical computing and graphics creation.

What is the trading market?

Shares of Super Micro Computer (SMCI) are traded on NASDAQ.

NASDAQ is known for its large number of listed companies, especially those related to technology.

What are the sectors, industries, and themes to which SMCI belongs?

Super Microcomputers (SMCI) are categorized into the following sectors, industries, and themes

Sector: Technology

Sectors are broad categories of economic activity.
The technology sector includes companies that manufacture or provide computers, software, electronics, and telecommunications equipment.

Industry: Computer hardware

Industry is a more specific type of business.
The computer hardware industry includes companies that manufacture physical computer equipment such as personal computers, servers, storage devices, and networking equipment.

Themes: AI (Artificial Intelligence), Cloud Computing, Big Data, Energy Efficiency

A theme is a category that brings together companies related to a particular trend, technology, or industry trend.
SMCI offers products related to cutting-edge technology trends such as AI and cloud computing.
It also relates to environmentally friendly themes such as green IT and sustainability by providing energy-efficient products.

These classifications help investors understand SMCI's business model and compare it to other companies in the same sector, industry, or theme.

When was SMCI incorporated and listed?

Super Micro Computer Corporation (SMCI) was founded in San Jose, California, USA, in 1993.

The company continued to grow and became a public company with its initial public offering (IPO) on NASDAQ on March 29, 2007.

SMCI continues to provide IT infrastructure products such as servers, storage, and networking to maintain its leadership in the technology industry.

Dividends?

Not implemented

Size and growth potential of the industry to which SMCI belongs

Super Micro Computer (SMCI) belongs toThe data center server market is expected to exceed $60 billion in 2021 and grow at a compound annual growth rate (CAGR) of more than 10% from 2022 to 2030.

This growth is being driven by the integration of technologies such as AI and machine learning into data center servers.

Particularly,The blade server segment is expected to grow about 10% by 2030.
This is a major driver of growth in the data center server market, with lower power consumption and higher processing power.

The small data center server market is expected to grow 13% between 2022 and 2030.
This is due to the increasing adoption of cloud computing, AI, and other technologies by small and medium-sized businesses, which are deploying servers throughout data center facilities.

Furthermore, the Asia-Pacific data center server market is expected to grow at an annual rate of 15% by 2030 as digitization continues.

From these information,The industry to which SMCI belongs is large and shows even higher growth potentialIt can be seen that
This is,This reflects the growing demand for data and the corresponding increase in demand for data centers.

Who are SMCI's competitors?

In the server, storage, and networking hardware markets in which SMCI is active, competitors include

• Dell Technologies (DELL)Dell offers a wide range of IT hardware, from personal computers to enterprise servers, storage, and networking products.
• Hewlett Packard Enterprise (HPE): HPE provides enterprise IT infrastructure and software, and competes with SMCI on products such as servers and storage.
• LenovoLenovo also offers a wide range of products, from personal computers to enterprise IT hardware.
• Cisco Systems (CSCO)Cisco provides networking hardware and software and competes with SMCI, especially in networking products.

These companies, like SMCI, provide IT infrastructure for enterprises and data centers, allowing customers to choose the best products and solutions for their needs.

Competitive differentiators and advantages of super microcomputers (SMCI)

Factors that SMCI emphasizes to differentiate itself from its competitors include

Strong Partnerships

super microNVIDIAand Intel,AMDetc.Strong partnerships with major chip makers allow us to bring the latest GPUs and CPUs to market quickly.
The partnership provides high-performance servers for AI and HPC.

Customizable solutions

Super Micro is,Have the ability to customize products to meet specific customer requirements.In particular, the company's Server Building Block Solutions can be customized to meet specific customer needs. This allows them to build systems optimized for a variety of workloads and applications.

Rapid delivery system

Supermacro's Lux Scale solution can be delivered quickly andThe company has earned a particularly strong reputation for building AI factories, enabling customers to install and begin operating systems in a short period of time.

Product breadth and depth

SMCI has a product lineup that covers a wide range of needs, from enterprise to personal use. This allows customers to select the product best suited to their requirements.

Liquid Cooling Solutions

Super Micro offers state-of-the-art liquid cooling technology, which can significantly improve the energy efficiency of data centers. Liquid-cooled servers can reduce power costs by up to 401 TP3T compared to conventional air-cooled servers.

Particularly,The company's 4U 8-GPU liquid-cooled server is powered by NVIDIA H100/H200 HGX GPUs, providing petaflops of AI computing power. This creates a very high-density computing environment that can significantly improve the efficiency of AI training and HPC simulations. 

Compatible with new technologies

Supermicro has introduced new servers that support the latest technologies, such as the Intel Gaudi 3 AI accelerator and AMD MI300X accelerator, allowing customers to build high-performance computing environments that take advantage of the latest technologies.

These factors are critical to Sue Microcomputer's success in the competitive data center server market.

Future Development of SMCI

SMCI's future business activities include semiconductor companies that are required for high-performance AI servers (AMDand ... andNVIDIAThe company is strengthening its partnership with the company, which could be a major growth factor.

New products for cloud gaming and video hosting

SMCI now offers MicroCloud, a high-density 3U 8-node system utilizing AMD Ryzen Zen 4 7000 series processors.
This new multi-node system offers cost-optimized performance at scale for e-commerce, software development, cloud gaming, content creation, and private server instances.

Expansion of AMD product line

SMCI is expanding its AMD product line with new servers and processors optimized for cloud infrastructure (cloud server equipment in general) and high-performance technical computing.
The AMD EPYC 9004 series processor system portfolio is evolving, utilizing up to 128 new "Zen 4c" cores and AMD 3D V-Cache technology.

New products and storage systems on display at COMPUTEX 2023

SMCI showcased its new server and storage systems at COMPUTEX TAIPEI 2023 to highlight new products that enable rapid deployment from the data center to the edge with superior performance, flexibility, and energy efficiency.

Announcing the "Accelerate Everything" strategy

Charles Liang, founder and CEO of SMCI, to outline developments accelerating cloud, AI, edge, and storage workloads, investments in rack-scale manufacturing, and innovations to reduce the environmental impact of today's data centers,Jensen Huang, CEO of NVIDIA, along with other industry luminaries, presented SMCI's "Accelerate Everything" strategy.

From these developments,SMCI aims to maintain its competitive edge in the industry and achieve further growth by developing new products, strengthening partnerships, and introducing environmentally friendly technologiesIt can be seen that

What are SMCI's servers for AI and what are their features?

These servers aim to accelerate AI training, deep learning, HPC, generative AI, and metaverse.

On March 24, 2023, the company will begin shipping several of its newest GPU servers, including the latest NVIDIA HGX™ H100 8-GPU system.

The new NVIDIA HGX H100 Delta-Next server is expected to deliver a 9x performance improvement in AI training applications compared to the previous generation.

It also features an innovative airflow design that reduces cooling fan speed, lowers noise levels, and reduces power consumption, resulting in a lower total cost of ownership (TCO).

The latest Supermicro 8U GPU servers feature NVIDIA HGX H100 8-GPUs and are optimized for AI, deep learning, machine learning and HPC workloads.

It also enables the fastest GPU-to-GPU communication, leveraging the fastest NVIDIA NVLink® 4.0 technology, NVSwitch™ interconnect, NVIDIA Quantum-2 InfiniBand and Spectrum®-4 Ethernet networks to enable large-scale AI processing Enables large-scale AI processing.

The Super Micro Computer (SMCI) is,Leading the industry in providing high-performance servers for AI by offering cutting-edge servicesThe company is doing so.

Why was SMCI able to grow overwhelmingly with AI servers?

Why has Super Micro Computer (SMCI) experienced remarkable growth in the AI server market?The company's innovative infrastructure solutions for AI and its products, including NVIDIA's latest H100 GPUs, are on the market.

SMCI simplifies the deployment of AI, from large-scale AI training to edge inference, and offers it as a "complete, ready-to-use solution.

In particular, systems utilizing NVIDIA's HGX H100 SXM 8-GPU/4-GPU maximize high-speed GPU-to-GPU communication and processing capacity for large data sets, enabling efficient AI model training.

These systems feature a "flexible customizable structure" and "designed to get up and running quickly," helping companies effectively deploy AI-based business models and applications.

On the other hand, NVIDIA's H100 was extremely popular in the AI semiconductor market, and demand for it continued to outstrip supply.

However, supplies have begun to stabilize, and NVIDIA is supplying H100 preferentially to companies based on past sales performance.

SMCI has a proven track record of selling servers equipped with the previous generation of A100 GPUs, and this track record has contributed to the supply of H100 GPUs, resulting in SMCI selling many H100 GPUs, which in turn has resulted in increased sales and stock price growth.

Thus, SMCI's overwhelming growth in the AI server market has been achieved through a combination of advanced product offerings and supply advantages from a solid sales track record.

SMCI's Performance

Super Microcomputer Corporation (SMCI) has a fiscal year ending June 30 of each year.

Quarterly results are as follows: Q1: September, Q2: December, Q3: March, and Q4: June.

First, we will review the following four indicators to perform a minimum performance analysis of SMCI.

1. Sales:An indicator of a company's performance and growth.
2. Operating cash flow and operating cash flow margin:An indicator that looks at how much cash a company generates from its services. Margins are considered excellent when they are 15% of that ratio.
3. Operating Income:Profit earned by a company from its core business. An indicator to evaluate a company's performance.
4. EPS:An indicator that looks at a company's earning power "profitability" and "growth potential" in terms of net income per share. The higher the number, the higher the profitability.

Each data is,Investing.com, ,TradingViewSee from

Supermicrocomputer (SMCI) Stock Price

View a real-time stock price chart (TradingView) showing the current stock price of Super Micro Computer Incorporated (SMCI).

The chart shows the Relative Strength Index (RSI). Reference as an indicator of market overheating.

*An overbought indicator when the RSI exceeds 70% to 80%, and conversely, an oversold indicator when the RSI falls below 20% to 30%.

SMCI Quarterly: Sales Trends

Quarterly sales forecasts and actual sales and year-on-year changes.

Sales forecasts and actual results are shown in graphs.

SMCI Quarterly: Operating Cash Flow Trends

Quarterly operating cash flow and operating cash flow margin.

Each transition is shown in the graph below.

SMCI Quarterly: Operating Income Trends

Quarterly operating income.

Each transition is shown in the graph below.

SMCI Quarterly: EPS Trends

Quarterly EPS forecast and actual EPS.

Each transition is shown in the graph below.

SMCI Full Year: Sales Trends

This is the sales forecast for the full year and actual sales and year-on-year changes.

Each transition is shown in the graph below.

SMCI Full Year: Operating Cash Flow Trends

Operating cash flow for the full year and operating cash flow margin.

Each transition is shown in the graph below.

SMCI Full Year: Operating Income and Operating Margin Trends

Operating income and operating margin for the full year.

Each transition is shown in the graph below.

SMCI Full Year: EPS Trends

This is the EPS forecast and actual EPS for the full year.

Each transition is shown in the graph below.

Full Year: Considerations from EPS Trends

• EPS has increased significantly since 2022, basically exceeding forecasts.
• The outlook is also high and substantial growth is expected.

SMCI's Growth Strategy and Future Prospects

The following are listed as strategies for SMCI to remain competitive, respond to market changes, and grow.

Product Portfolio Expansion

SMCI is expanding its product line for the enterprise, cloud, and edge computing markets. By being the first to market with new technologies and technology enhancements, the company aims to increase the number of products it offers to its customers.

Improved energy efficiency

To improve the energy efficiency of the product, the company aims to enhance power and thermal management capabilities and increase component density.

Expansion into new markets

The company is expanding into new growth markets such as 5G, AI, and edge computing.

Expansion of customer base

SMCI is expanding its customer base by increasing sales to new and existing customers. This includes Fortune 100 companies, leading cloud services providers, and leading technology companies.

Supply Chain Optimization

SMCI continues its efforts to improve supply chain efficiency.
This includes improved processes for component procurement, inventory management, and product shipment.

Sustainable Product Development

SMCI focuses on developing products that are energy efficient and recyclable. By doing so, the company aims to provide environmentally friendly products and achieve sustainable growth.

furthermoreManagement expects the economy to soften in 2023, followed by a strong year in 2024.

SMCI is a partner of NVIDIA, which also has strong prospects for the AI data center business.

SMCI's market share of the server market

SMCI's server market share is quite low at this time.

Therefore, the performance impact of increasing market share is expected to be significant.

Reference:Companies using Supermicro Servers and its marketshare

Supermicrocomputer (SMCI) Q1 FY2024 Financial Summary

• Sales: (Millions of yen)$212 million, a slight decrease compared to $218 million in the previous quarter, but an increase compared to $185 million in the same period last year.
• Gross profit margin: (%)16.71 TP3T, down from 17.01 TP3T in the previous quarter and 18.81 TP3T in the same period last year.
• Net income$157 million, fluctuating compared to $194 million in the previous quarter and $184 million in the same quarter last year.
• Net income per share (diluted)$2.75, down from $3.43 in the previous quarter and $3.35 in the same period last year.
• Non-GAAP net income per share (diluted): (in millions of yen)$3.43, almost unchanged compared to $3.51 in the previous quarter and $3.42 in the same period last year.
• Cash flows from operating activities: (Millions of yen)The company generated $271 million in the first quarter, with capital expenditures of $3 million.
• Cash and cash equivalents: as of September 30, 2023, there was $5.43 billion, with bank loans of $1.46 billion.

Company Outlook and Management Comments

• In the second quarter of fiscal year 2024, sales are expected to range from $270 million to $290 million.
• GAAP net income per share is expected to be $3.75 to $4.24 and non-GAAP net income per share is expected to be $4.40 to $4.88.
• For the entire fiscal year 2024, sales will remain in the range of $1 billion to $1.1 billion.

SMCI's Release on Upward Revision for Q2 FY2024

SMCI will release its business update for the second quarter of 2024 on January 19, 2024.
Expected to exceed previous financial guidance.

Expected scope and previous guidance

• Net sales: $3.6 billion to $3.65 billion (previous guidance was $2.7 billion to $2.9 billion)
• GAAP Net Income per Share: $4.90 to $5.05 (previous guidance was $3.75 to $4.24)
• Non-GAAP Net Income per Share: $5.40 to $5.55 (previous guidance was $4.40 to $4.88)

The stock price has shown a significant increase due to this announcement.

Super Micro Computer (SMCI) Q2 FY2024 Financial Summary

• Net salesAt $3.66 billion, it was up sharply from $1.8 billion in the same period last year, beating market expectations of $3.42 billion.
• Adjusted EPS (Earnings per share)5.59, up from $3.26 in the same period last year and above the market estimate of $5.16.
• Adjusted Gross Margin: 115.51 TP3T, down from 18.81 TP3T in the same period last year and below market expectations of 16.51 TP3T.

Future Outlook

• The next sales forecast is $3.7-4.1 billion, much higher than the market forecast of $3.07 billion.
• Next adjusted EPS is expected to be between $5.20 and $6.01, above the market estimate of $4.65.
• Going forward, with continued strong sales to existing customers, expanding new customers, and a strong pipeline of new products, the full-year sales outlook has been revised upward to $14.3-14.7 billion, well above the market estimate of $12.03 billion.

point

• Continued demand for rack-scale products for AI, mostly for NVIDIA, Intel, and AMD.
• Supply capacity of key components gradually improved.
• Continued development for NVIDIA GH200 Grace Hopper and for the next generation models from AMD and Intel to secure a leading position in the market.
• Plant expansions in San Jose, California, North America, Taiwan, and Malaysia have brought economies of scale and operational efficiencies.
• Super Micro has developed and leads the industry in developing the most innovative AI infrastructure, offering rack scale for virtually every industry.

The announcement of these financial results has led to a significant rise in the stock price, to the neighborhood of $600.

Super Micro Computer (SMCI) Q3 FY2024 Financial Summary

• Net salesThird-quarter sales were $3.85 billion, up from $3.66 billion in the previous quarter and a significant increase compared to $1.28 billion in the same period last year.
• Gross Profit: Gross ProfitGross margin was 15.51 TP3T, up slightly from 15.41 TP3T in the previous quarter and down from 17.61 TP3T in the same quarter last year.
• Net income Net income was $402 million, up sharply from $296 million in the previous quarter and $86 million in the same quarter last year.
• Earnings per share (EPS): (Yen in millions)Diluted net income per share was $6.56, up from $5.10 in the previous quarter and $1.53 in the same period last year.

Business Outlook and Comments from Management

• The third quarter saw strong demand for AI rack-scale PnP solutions, extending their market leadership.
• We have raised our revenue forecast for fiscal year 2024 from $1.43 billion to $1.47 billion to $1.51 billion.

Other important financial information

• Operational cash flow: (Millions of yen)Cash flow from operational activities in the third quarter was a use of $1.52 billion, with capital expenditures of $93 million.
• Cash and cash equivalents: Cash and cash equivalentsCash and cash equivalents at the end of the period were $2.115 billion, a significant increase over the previous year.

Non-GAAP Indicators

• Non-GAAP net income per share was $6.65, up from $5.59 in the previous quarter and $1.63 in the same period last year. Non-GAAP measures are adjusted for certain expenses and are intended to more clearly reflect the actual operations of the company than regular GAAP measures.

Based on the above information, it can be seen that the company's performance has markedly improved over the previous year.

Super Micro Computer (SMCI) Q4 2024 and Full Year Financial Summary

• Annual Sales: $14.9 billion, up $110.1 TP3T from $7.1 billion the previous year.
• Annual net income: $1,208.1 million, a significant increase from $640 million the previous year.
• Earnings per share (EPS):
  • 20.09 on a GAAP basis, up from $11.43 the previous year.
  • 22.09 on a Non-GAAP basis, up from $11.81 a year earlier.

Fourth Quarter Details

• Net sales: $5.31 billion, a significant increase from $2.18 billion in the same period last year.
• net income: $353 million, up from $194 million in the same period last year.
• gross margin ratio: 11.21 TP3T, down from 17.01 TP3T in the same period last year, mainly due to increased competition.

Progress of Major Businesses

• Increased demand for AI infrastructure: Demand for AI-related infrastructure has skyrocketed and is a major driver of increased corporate sales. In particular, rack-scale liquid cooling technology is attracting attention.
• Data Center Solutions: The introduction of new data center building block solutions has strengthened the company's competitiveness in the IT infrastructure market.

Future Outlook

• Sales forecast for the first quarter of FY2025: $6 billion to $7 billion.
• Sales forecast for full year 2025: We expect even greater growth, from $26 billion to $30 billion.

Management's Comments

CEO Charles Liang stated, "We are laying the groundwork to become the largest company in the IT infrastructure market by providing technology leadership to support the growth of the AI revolution. The company's expansion investments in Malaysia and Silicon Valley are also expected to strengthen its supply chain and bring economies of scale.

Which brokerage firms can I buy shares of Super Micro Computer (SMCI)?

The following is a list of major brokerage firms that offer shares of Super Micro Computers (SMCI). At these brokerages, you can choose to invest as a CFD (Contract for Difference) as well as directly as a foreign stock.

I myself mainly use SBI Securities, but some stocks they handle may not be available for purchase. In such cases, I sometimes use CFDs at Saxo Bank Securities or IG Securities.

summary

This article has described the Super Micro Computer (SMCI) in detail.

SMCI produces and sells servers and storage products for enterprises and data centers, as well as motherboards for personal computers, and its performance has been very strong.

Of particular note is the sale of servers with new CPUGPUs.
If this is sold, corporate performance could change dramatically.
The promotion of energy-efficient servers has also contributed to the improvement in performance.

Furthermore, future data center capital expenditures, especially in the U.S. market, are expected to be very important.

AMDand ... andNVIDIASMCI's future performance will be greatly affected by the extent to which server products equipped with the new CPUGPUs of

Based on the above, SMCI continues to be a company that investors should keep an eye on.

I started buying SMCI stock around April, when it was in the neighborhood of $100.

Then, as I continued to buy more and more, the investment experience so far has been a blast, including over $300.
By March 2024, the price has surpassed $1,000.
We intend to hold it for the long term, repeatedly buying it when it drops, while holding interest.