In the past year, AI has set off a wave of wealth creation in the capital market, with $NVIDIA Corp(NVDA)$ , the AI leader, boasting a market value of over US$1.4 trillion, making it the best performing tech giant in the US!
While the market is focused on NVIDIA, there's actually another AI leader that has outperformed it in terms of gains!
That company is $SUPER MICRO COMPUTER INC(SMCI)$ !
In 2023, SMCI soared 246%, outperforming NVIDIA's 239%; at the beginning of 2024, it gained another 53%, far exceeding NVIDIA's 20%!
What is the existence of such a powerful AI leader? Can investors still buy?
According to its official website, SMCI is a global technology leader that provides innovative solutions for enterprises, cloud computing, AI, and 5G/edge IT infrastructure.
The company is transforming itself into a comprehensive IT solutions provider that offers environmentally-friendly and energy-efficient servers, AI, storage, IoT, switch systems, software and services, as well as advanced large-capacity motherboards, power supplies, and chassis products.
Simply put, SMCI is a server system integrator:
After ChatGPT took AI by storm in 2023, NVIDIA's GPUs became difficult to obtain, but SMCI is the world's largest provider of server host solutions and has a close relationship with NVIDIA. It has quickly responded to AI demand and obtained sufficient NVIDIA GPUs, leading to a significant revenue increase over the past year:
On January 18th, SMCI released a forecast for the second quarter of the fiscal year 2024, significantly increasing its guidance for revenue to around $3.6 billion, far exceeding the previous guidance of $2.8 billion:
The explosive growth in performance naturally ignited the stock price. However, can SMCI still buy?
From a fundamental perspective, SMCI does not have a deep moat. Based on historical stock prices, before the AI boom, its stock price was not strong and was average at best:
This is mainly because SMCI lacks core competitiveness. As a server integrator, its profits are earned by suppliers such as NVIDIA, $Advanced Micro Devices(AMD)$ , and $Intel(INTC)$ . With other giants competing, SMCI's profitability is poor, with a gross profit margin of only 18%, and an adjusted net profit margin of only 9%, which is already the best performance in history:
This profitability is likely to just enjoy the AI explosion dividend, once the market AI demand slows down slightly, Nvidia GPU capacity restrictions are lifted, and there is a risk of declining profitability of SMCI.
For example, SMCI's expense ratio temporarily decreased due to the sudden increase in demand for growth. The Sales and Marketing expense ratio decreased from around 2.4% to 1.6%, General and Administrative expense ratio decreased from around 3% to 1.4%. The R&D expense ratio decreased from around 5.5% to 4.3%, greatly improving SMCI's profitability:
However, these are all results of the sudden increase in AI demand! It is difficult to maintain such high growth rates based on historical revenue growth rates!
After soaring, the P/E ratio of SMCI reached 40 times. Although this valuation is not expensive compared to its performance growth, it's important to remember that SMCI has poor profitability, large historical growth rate fluctuations, and lacks core products. Its historical P/E ratio has been around 20 times. Once AI demand cools down, SMCI's risk is much higher than that of NVIDIA, AMD, and Intel!
Therefore, although SMCI has outperformed NVIDIA in terms of stock price growth, investors should still be cautious due to the risks involved!
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