Recommendation: Buy
| Entry Date | Symbol | Recommendation | Entry Price (USD) | Target 1 (USD) | Target 2 (USD) | Holding Duration | Potential Upside* |
|---|---|---|---|---|---|---|---|
| 31 Jan, 25 | SMCI | Buy | USD 28.64 | USD 31.22 | USD 33.51 | 6 days | 17.0% |
*Potential Upside (%) indicates the expected percentage increase from the Entry Price to the Target 2 Price.
Data Powered by EOD Historical Data (“EODHD”).
Super Micro Computer, Inc., together with its subsidiaries, develops and manufactures high performance server and storage solutions based on modular and open architecture in the United States, Europe, Asia, and internationally. Its solutions range from complete server, storage systems, modular blade servers, blades, workstations, full racks, networking devices, server sub-systems, server management software, and security software. The company provides application-optimized server solutions, rackmount and blade servers, storage, and subsystems and accessories; and server software management solutions, such as Server Management Suite, including Supermicro Server Manager, Supermicro Power Management software, Supermicro Update Manager, SuperCloud Composer, and SuperDoctor 5. In addition, it offers server subsystems and accessories comprising server boards, chassis, power supplies, and other accessories. Further, the company provides server and storage system integration, configuration, and software upgrade and update services; and technical documentation services, as well as identifies service requirements, creates and executes project plans, and conducts verification testing and technical documentation, and training services. Additionally, it offers help desk and on-site product support services for its server and storage systems; and customer support services, including ongoing maintenance and technical support for its products. The company provides its products to enterprise data centers, cloud computing, artificial intelligence, and 5G and edge computing markets. It sells its products through direct and indirect sales force, distributors, value-added resellers, system integrators, and original equipment manufacturers. The company was incorporated in 1993 and is headquartered in San Jose, California.
Earnings Per Share Improvement: The non-GAAP diluted net income per share for fiscal year 2024 was $22.09, a substantial increase from $11.81 per share in fiscal year 2023. This demonstrates strong profitability and operational efficiency, excluding stock-based compensation expenses.
Revenue Growth: Supermicro achieved a remarkable 110% year-over-year increase in net sales for fiscal year 2024, reaching $14.94 billion, compared to $7.12 billion in fiscal year 2023. This highlights significant growth in demand, particularly driven by AI infrastructure.
Cash Flow Usage: Supermicro reported cash flow used in operations amounting to $635 million for the fourth quarter of fiscal year 2024. This negative cash flow suggests that the company may be facing challenges in managing operational expenses or reinvesting effectively.
Gross Margin Decline: The gross margin for the fourth quarter of fiscal year 2024 was 11.2%, down from 15.5% in the previous quarter and 17.0% in the same quarter of the previous year. This decline indicates pressure on profitability despite revenue growth.
Key investment risks for Supermicro include potential volatility in gross margins due to increased operational costs, reliance on continued demand for AI infrastructure, and significant cash flow usage that may strain liquidity and affect growth initiatives.
| Entry Price | Support* | Target 1 | Target 2 |
|---|---|---|---|
| 28.64 | 24.92 | 31.22 | 33.51 |
Data Source: REFINITIV, Analysis: StockNextt
*Support can be considered as an indicative stop-loss, and if prices move below that level on closing basis individuals may evaluate exiting the position depending on their risk appetite, previous holdings, and other factors considered. The support and resistance levels may need to be re-evaluated within 4-6 weeks’ time frame depending on the stock price movements from the date of recommendation on the stock.
Supermicro Reports Strong Fourth Quarter Results for Fiscal Year 2024
Supermicro achieved a notable performance in the fourth quarter of fiscal year 2024, reporting net sales of $5.31 billion. This marks a significant increase compared to $3.85 billion in the third quarter of fiscal year 2024 and $2.18 billion in the same quarter of the previous year. Despite the impressive revenue growth, the company experienced a decline in gross margin, which stood at 11.2% for the quarter, down from 15.5% in Q3 of fiscal year 2024 and 17.0% in Q4 of fiscal year 2023. The company’s net income for the fourth quarter was $353 million, a decrease from $402 million in the third quarter of fiscal year 2024, but an improvement from $194 million in the same quarter of the prior year.
Earnings Per Share and Non-GAAP Adjustments
The diluted net income per share for the fourth quarter of fiscal year 2024 was $5.51, a decrease from $6.56 in the third quarter of fiscal year 2024 and an increase from $3.43 in the fourth quarter of fiscal year 2023. On a non-GAAP basis, the diluted net income per share for the fourth quarter was $6.25, compared to $6.65 in Q3 of fiscal year 2024 and $3.51 in the same quarter of the previous year. These non-GAAP results reflect adjustments for stock-based compensation expenses and related tax effects. The company also reported cash flow used in operations amounting to $635 million and capital expenditures of $27 million.
Stock Split Announcement
In a move to enhance shareholder value, Supermicro’s Board of Directors approved a 10-for-1 forward stock split, which is scheduled to take effect on October 1, 2024. This initiative reflects the company’s continued strong performance and provides greater accessibility for investors. The split-adjusted trading will commence shortly after the effective date.
Fiscal Year 2024 Financial Overview
For the fiscal year ending June 30, 2024, Supermicro reported net sales of $14.94 billion, a substantial increase from $7.12 billion in fiscal year 2023. The company’s net income for the year was $1.21 billion, or $20.09 per diluted share, up from $640 million, or $11.43 per diluted share, in the previous fiscal year. On a non-GAAP basis, net income for fiscal year 2024 was $1.34 billion, or $22.09 per diluted share, compared to $673 million, or $11.81 per diluted share, in fiscal year 2023. These results also include adjustments for stock-based compensation expenses, which added back $135 million, net of related tax effects.
Strategic Investments and Future Growth
Charles Liang, President and CEO of Supermicro, attributed the company’s remarkable growth to the unprecedented demand for AI infrastructure, which propelled fiscal year 2024 revenue up 110% year-over-year. He emphasized that Supermicro is well-positioned to lead the IT infrastructure industry, with advanced technologies such as rack-scale DLC liquid cooling and innovative Datacenter Building Block Solutions. Additionally, investments in facilities in Malaysia and Silicon Valley will enhance the company’s supply chain, security, and overall scalability, supporting future growth in the AI sector.
Outlook for Fiscal Year 2025
Looking ahead to fiscal year 2025, Supermicro has provided an optimistic outlook. For the first quarter of fiscal year 2025, the company expects net sales in the range of $6.0 billion to $7.0 billion, with GAAP net income per diluted share between $5.97 and $7.66. Non-GAAP net income per diluted share is projected to range from $6.69 to $8.27. The company also forecasted net sales for the full fiscal year 2025 to be between $26.0 billion and $30.0 billion, highlighting continued robust growth driven by AI-related demand and other technological advancements.
Considering recent key business, financial updates, current trading levels, and key business risks, a ‘Buy’ recommendation has been given on Super Micro Computer, Inc (NASDAQ: SMCI) at the closing price of USD 28.64, as on January 30, 2025.
Data Powered by EOD Historical Data (“EODHD”).
Sector: Technology Industry: Computer Hardware
| Company | Change (USD) | Price (USD) | Trailing PE (x) | Forward PE (x) | Price Sales TTM (x) | Price to Book Value (x) | Enterprise Value to Revenue (x) | Enterprise Value to EBITDA (x) |
|---|---|---|---|---|---|---|---|---|
| SMCI Super Micro Computer Inc |
0.96 2.80% | 35.20 | 49.25 | 28.90 | 5.69 | 17.11 | 5.65 | 57.68 |
| DELL Dell Technologies Inc |
0.80 0.88% | 91.95 | 19.41 | 11.81 | 0.83 | 4.39 | 1.02 | 10.88 |
| ANET Arista Networks |
0.36 0.46% | 77.84 | 39.49 | 31.45 | 13.08 | 11.15 | 12.18 | 31.54 |
| CAJFF Canon Inc |
- -% | 30.64 | 15.35 | 12.14 | 0.0071 | 1.35 | 1.14 | 7.50 |
| CAJPY Canon Inc. |
0.19 0.61% | 31.37 | 16.33 | 11.29 | 0.0071 | 1.45 | 1.14 | 7.50 |
Data Powered by EOD Historical Data (“EODHD”).
Related Risks: This report may be looked at from high-risk perspective and recommendations are provided are for a short duration. Recommendations provided in this report are solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.
Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is January 30, 2025. The reference data in this report has been partly sourced from REFINITIV.
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Target: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Target 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Target 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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