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Even after a spectacular rally in July and early August, most tech stocks have had a terrible 2022, with most still down double-digits for the year. of Nasdaq Composite It is still down about 17% year over year, and semiconductor and hardware-oriented Van Eck Semiconductor ETF (SMH 2.82%) Reduced by more than 20%.
So when you find a stock that has defied the sector and is now up 49% for the year, it can be an indicator of long-term performance. Here’s how this under-the-radar-tech name is taking its chances.
Skating where the puck goes
Hockey great Wayne Gretzky once said, “Skating isn’t where it’s at, it’s not where it was.” That’s the strategy under founder and CEO Charles Liang. Super micro computer (SMCI 1.70%) Hired to stay ahead of today’s major trends in data center technology.
A super microcomputer, at first glance, doesn’t seem like a “sexy” piece of technology. The company makes servers and subsystems that go into data centers. Therefore, it does not manufacture proprietary semiconductors, storage, memory or network switching technologies, but instead assembles systems for data center customers.
However, with computer-enhanced artificial intelligence (AI) applications taking off in earnest, Super Micro’s two biggest customer needs are now translating into huge benefits. These are the “building blocks” of (1) energy-efficient computing and (2) mass customization.
Old saying: Helping customers save time and money
Natural gas prices have risen over the past year. With the advent of AI, data centers are running computer-intensive servers that require large amounts of electricity. In addition, this calculation generates a lot of heat, requires built-in cooling systems, which in turn requires more electricity.
For years, Super Micro has adopted a “green computing” strategy that focuses on energy-efficient server designs with highly efficient air and liquid cooling system architecture. That effort is paying off big today.
One key metric used by data center operators is power utilization efficiency, or PUE, which calculates the ratio of the total power required for the data center to the amount of power actually going to IT computing equipment. The lower the number, the better.
The industry average PUE is 1.57, while the PUE for Super Micro’s latest server designs is only 1.05. According to management, if the entire data center market adopted Super Microgreen computing solutions, it would save the industry $10 billion a year and eliminate the need for 30% of fossil fuels.
In addition to energy efficiency, Super Micro has developed a strategy of plug-and-play subsystems that essentially divide servers into different “building blocks” that can be configured with other components in many different combinations.
Other server companies can save costs by mass-producing standard designs, but the building block strategy allows data center operators to upgrade parts of the server, such as new processors and memory chassis, rather than complete hardware, cables and more. Elements. This saves data center operators more on shipping and installation costs while increasing flexibility.
As more and more data center operators look for highly customized configurations depending on the application — from AI, to cloud gaming, to edge computing to the Internet of Things — Super Micro offers highly customized data center servers and racks in very short sizes. Duration relative to competitors.
Super Micro is taking off. Did you get on board?
Predicting key trends in energy efficiency, flexible configuration and fast time-to-market, Super Micro has seen its customers flock to server solutions this year.
When it reported its fiscal fourth quarter last Tuesday, Super Micro beat expectations, growing revenue 53% to $1.64 billion, with adjusted (non-GAAP) EPS of $2.62, up 223% and handily beating analysts’ estimates.
Even more exciting is Super Micro’s margin expansion, which widened operating margins to 10.7%, compared to 4.4% in the previous quarter. This shows that Super Micro is getting a premium for cost-effective hardware and achieving performance for scale.
Things could be even better. SMCI’s new Command Center Automation platform, which enables customers to configure and customize their own offerings and greatly streamline the sales process, is yet to be developed. The launch of the new platform this year is likely to boost Super Micro’s offerings to a larger customer base, management said.
While many tech companies are cautious in their outlooks, Super Micro gave bright guidance for 2023, forecasting revenue to grow to $6.6 billion at the midpoint, up 27 percent from 2022, and adjusted EPS of “at least” $7.50, indicating growth. 33% This compares to today’s share price of $65.
But after next year, Liang has bigger ambitions for Super Micro, believing that in the “medium term” it will take shares to $20 billion in the next few years and earn $10 billion in revenue.
Considering that Super Micro’s market cap is only $3.4 billion, even after this year’s run, this under-the-radar tech stock could be just getting started.
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