Supermicro shares rose 89% in 2022, besting all other $1 billion-plus US tech businesses. The company's market valuation is $4.4 billion, up from $2.4 billion at the beginning of the year.
The firm makes computers and offers them to other corporations as servers for websites, data storage, and artificial intelligence (AI) algorithms.
Financial Analysis
In the low-margin server industry, Supermicro competes with Dell, IBM, HPE, and China's Inspur. Supermicro had 2.6% of the market in 2021, based on reports.
According to CNBC, Supermicro differentiates itself by enabling consumers to personalize computers. And that is more lucrative than stock servers.
Its business strategy works. Supermicro reported a 46% increase in fiscal 2022, ending in June, at $5.2 billion. In 2022, earnings per share soared to $5.32 from $2.09 in 2021 and $1.60 the year before.
Nehal Chokshi, an analyst at Northland Capital Markets, suggests purchasing the company because "the stock is actually just simply mirroring the earnings-per-share (EPS) increases we have seen over two years."
Chokshi's $165 price prediction is the highest among FactSet analysts.
The stock price of Supermicro ended Tuesday, Dec. 27, at $82.89.
Behind Success
Supermicro CEO Charles Liang told CNBC that its recent growth reflected its scale and flexibility to customize products.
Liang said Supermicro's headquarters in San Jose, California, where the business handles most of its production, is part of its diversification strategy.
He said building locally is more costly than abroad, but it enables the firm to be closer to semiconductor makers it supplies and large clients like cloud providers and giant websites.
"Silicon Valley enables us for better technology, faster time to market, and quick service, quick maintenance of our customer," Liang added.
According to the CEO, tech businesses are eager to pay for Supermicro's execution and design talents.
Machine learning techniques demand a lot of computational power, generally from Nvidia or AMD graphics processors. Supermicro's motherboards and systems can fit up to eight GPUs. In the most recent quarter, 45% of the firm's revenue came from enterprise sales.
Notably, Supermicro is also targeting 5G or telecom servers with its OpenRAN solution.
Supermicro expects $8 billion to $10 billion in sales in 2024. The company claims it needs significant growth from AI products and more integrated systems or rack-mounted servers.
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Skeptic Thoughts
Analysts doubt the firm can meet its goals in a weaker economy.
Susquehanna's Mehdi Hosseini, who has a hold rating on the stock, said he just lowered the share. He believes Supermicro will encounter headwinds in the coming year, and its growth plans are overly high.
Wedbush analyst Matt Bryson, who has a neutral recommendation on the company, explained, "While we applaud the quarter, we are far more cautious when thinking about Supermicro's intermediate to longer term path ... The company's now stated goal of $8 billion to $10 billion in revenues in 2024 with trepidation given the headwinds."
CEO Liang is optimistic Supermicro can keep gaining clients even if growth slows. He predicted an 80% increase in a good year and only 20% in a bad year.
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