Shares of Super Micro Computer (SMCI 7.34%) were surging on Thursday, with a remarkable 7.5% increase as of 2:35 p.m. ET.
Despite already experiencing significant growth in 2023, with a 233% increase, the stock is still approximately 25% below its early August highs. The anticipation of lower interest rates and an economic “soft landing” is fostering a positive sentiment for cyclical stocks like Super Micro, particularly in the technology hardware sector.
Furthermore, Super Micro has released a statement today announcing the availability of servers featuring the new Intel (INTC 1.36%) fifth-generation Xeon server processor. This news is likely contributing to the growing enthusiasm for this AI stock.
Super Micro Positioned as a Growth Stock Amid Favorable Market Conditions
Previously recognized primarily as a cyclical hardware manufacturer with little to differentiate its products, Super Micro Computer has undergone a transformative period in terms of revenue and earnings over the last two years. This has been attributed to the increasing traction of its unique “building block” architecture and energy-efficient designs, which have resonated strongly with customers in the age of AI.
Consequently, Super Micro has seen significant growth in its P/E multiple alongside a surge in earnings per share, leading to substantial gains.
SMCI PE Ratio data by YCharts
As a result of its higher multiple, the stock’s sensitivity to long-term interest rates has increased. The recent signals from the Federal Reserve indicating a more dovish stance on future rate hikes have been a key factor driving Super Micro’s stock higher.
Additionally, Super Micro’s latest announcement regarding the availability of AI servers featuring Intel’s new fifth-generation CPU has also contributed to the positive outlook for the company.
Assessing Super Micro’s Valuation and Growth Prospects
Despite its P/E multiple of 27, which may seem elevated for a server manufacturer, Super Micro’s guidance for substantial revenue growth in fiscal 2024 reflects optimism about the company’s future prospects within the AI industry. With the potential for approximately 48% growth over 2023, Super Micro continues to be viewed as a top beneficiary of the AI trend.
Billy Duberstein has positions in Super Micro Computer and has the following options: short January 2025 $110 puts on Super Micro Computer, short January 2025 $125 puts on Super Micro Computer, short January 2025 $130 puts on Super Micro Computer, short January 2025 $280 calls on Super Micro Computer, short January 2025 $380 calls on Super Micro Computer, and short January 2025 $85 puts on Super Micro Computer. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Intel and Super Micro Computer and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.