1 High Growth 58% Stock to Buy Before It’s Too Late

Super Micro Computer (SMCI -0.23%) has been one of the hottest stocks on the market this year, posting huge gains of 73% at the time of writing, but a closer look at the stock’s more recent performance tells us that its bull run is over. In fact, shares of Supermicro (as the company is known) are down 58% since hitting a 52-week high on March 8.

However, the company, which makes server and storage solutions, is enjoying phenomenal growth due to the expanding demand for artificial intelligence (AI) servers, and it remains a hot industry. Let’s take a closer look at Supermicro’s outlook and see if the stock’s recent pullback is a buying opportunity.

The recent withdrawal of the action does not seem justified

Supermicro released its fiscal fourth quarter 2024 results for the three months ended June 30 on August 6. The company’s revenue for the year rose 110% to about $15 billion. Adjusted earnings also nearly doubled to $22.09 per share from $11.81 per share in fiscal 2023. Throw in the stock’s attractive valuation, and it looks like investors would do well to buy it right away now.

Supermicro has a price-to-sales (P/S) ratio of just 2. That’s a big discount to the US tech sector’s multiple of 7.8. Meanwhile, Supermicro’s forward earnings multiple of just 14 is also much cheaper than the US tech sector’s multiple of 45. We’ve already seen how fast Supermicro has risen, and the recent pullback has given investors a point solid entry into this stock, which could sustain its remarkable growth for a long time to come.

Investors should focus on the bigger picture

A fiscal 2025 revenue estimate of $26 billion to $30 billion suggests the company could double its revenue once more this year. The bright side is that Supermicro has a massive long-term growth opportunity in AI servers. According to one estimate, the size of the global AI server market could grow at a compound annual growth rate (CAGR) of 30% over the next decade, generating $430 billion in annual revenue by the end of the forecast period. This would represent a more than tenfold increase from the $40 billion in revenue that the AI ​​server market is expected to generate in 2024.

Supermicro is one of the best ways to play this massive growth opportunity, as the company’s share of the AI ​​server market is expected to continue to grow nicely in the future. Conformable Bank of AmericaSupermicro controlled 10% of the AI ​​server market last year. Its share of this market is expected to grow to 17% in 2026, and this will come as no surprise as it has been aggressively looking to increase its production capacity.

Management has consistently made moves to ensure that Supermicro can produce more racks of servers each month so that it can continue to grow at a tremendous pace. For example, in June, the company announced the addition of three new manufacturing facilities to meet the growing demand for liquid-cooled servers, which are gaining importance due to the adoption of AI.

It’s no surprise to see why analysts expect Supermicro’s earnings to grow at an annual rate of 62% over the next five years. Applying this growth rate to the company’s fiscal 2024 earnings of $22.09 per share indicates a bottom line of $246 per share after five years. If you multiply projected earnings by the Nasdaq-100’s average earnings multiple of 32, Supermicro’s stock would trade at more than $7,800 per share after five years.

Investors, however, should note that Supermicro has announced a 10-for-1 stock split that will take effect on October 1. But a stock split is simply a cosmetic move that increases a company’s number of outstanding shares to lower the price of each share so as not to alter Supermicro’s fundamentals and outlook.

If the market begins to reward Supermicro stock fairly for the remarkable growth it has delivered — and could continue to deliver over the long term — it could make investors significantly richer. That’s why investors would do well to add this growth stock to their portfolios while it’s still cheap.