Is it too late to buy Supermicro stock?

Super Micro Computer (SMCI 1.96%) has been building server systems for 30 years. Some of the world’s most powerful supercomputers come from Supermicro factories, and the company is one of the leading manufacturers of high-efficiency systems for training and running advanced artificial intelligence (AI) services.

The AI ​​boom has been very kind to Supermicro and its investors. The stock has gained 779% in two years, outperforming even the AI ​​chip giant Nvidia (NVDA 3.31%). Can this skyrocketing stock fly higher or is it already too late to invest in Supermicro?

Supermicro by the numbers

The stock is rising for good reason. Supermicro’s final sales grew 144% in two years, dating even before OpenAI launched its revolutionary ChatGPT service. Adjusted earnings rose 148% over the same period:

SMCI Revenue (TTM) data by YCharts

Thanks to the financial growth, Supermicro stock still looks quite affordable. The stock is changing hands at 31 times earnings and 2.4 times sales — not exactly a bargain, but those valuation ratios are well below Nvidia’s.

What’s more, Supermicro’s management expects its high-octane sales growth to continue in the recently started fiscal year 2025. Revenue should grow by about 88% this year. That’s down from 110% in fiscal 2024, which ended June 30, but it’s still an impressive growth projection for a company with $14.9 billion in annual sales. Behind this bullish trend, you’ll find customers embracing Supermicro’s modular system designs and ultra-efficient liquid cooling systems. The company is becoming the go-to solution for IT shops looking for high-performance computing solutions with modest power consumption and efficient cooling.

Supermicro’s reinvestment strategy

Supermicro isn’t resting on its AI laurels. The company is reinvesting its recent profit streams into forward-looking growth engines. Operating costs in the fourth quarter rose 38% year over year as Supermicro hired and trained more engineers. Capital expenditure has quadrupled due to lavish upgrades at Supermicro’s manufacturing facilities.

Future infrastructure improvements come with some uncomfortable short-term effects. Supermicro’s warehouses are full of $4.4 billion in inventory, up from $1.4 billion a year ago. Along with high operating costs and capital expenditures, free cash flows are deeply negative right now:

SMCI Free Cash Flow Data by YCharts

That’s enough to keep some investors away from Supermicro stock. However, the company has $1.7 billion in cash reserves to provide a resilient cash cushion while applying a financial laser focus on the AI ​​market opportunity. Golden eras like this don’t come around very often, and it would be a shame to give up the next few years of potential earnings just because it’s expensive in the short term. I like companies that are willing to deal with temporary costs to build a better long-term future.

You haven’t lost the Supermicro train yet

Supermicro’s growth story is firing on all cylinders. The company today is experiencing massive growth in sales and profits, and management is choosing to invest this windfall to take full advantage of this rare opportunity. The stock is on the rise but still reasonably affordable, and that’s another unusual combination.

No one saw this peak coming from a relatively sleepy system builder, but Supermicro is taking full advantage of this golden age. If you’re looking for a straight bet on the AI ​​industry’s hardware vendors, Supermicro stock offers a more affordable entry point than Nvidia’s nosebleed valuation ratios. Supermicro isn’t my favorite AI investment right now, but it’s hard to find a better idea in terms of hardware for this boom.