Is a Super Micro Computer Stock Split on the Horizon?

At the end of May, I spotted five soaring AI stocks that looked ready for a split. Just weeks later, three of them did exactly that. Now, we're left with two companies boasting high stock prices and ongoing AI momentum. One of these, Super Micro Computer (SMCI), seems like it could be the next to announce a split.

Super Micro Computer, often known simply as Supermicro, has been a standout performer in the stock market, particularly in the realm of artificial intelligence (AI). This article delves into the reasons behind its impressive growth, the potential for a stock split, and the future outlook for this tech giant.

Super Micro Computer: The Best-Performing Stock in the S&P 500

Supermicro was once a relatively unknown entity, nestled within the small-cap Russell 2000 index. However, its fortunes have dramatically shifted. With a staggering 246.2% gain in 2023 and an additional 188.2% surge in the first half of 2024, Supermicro has firmly entrenched itself as a heavyweight in the S&P 500. It even outpaced the renowned Nvidia in terms of gains.

In July, Supermicro's accolades continued as it was announced that the company would be admitted to the Nasdaq-100 index on July 22. After reaching a high of $1,229 per share in February, the stock has slightly pulled back to $801 per share as of now.

Could a Stock Split Be on the Horizon?

Stock splits don't alter a company's intrinsic value, but they often signal management's confidence in future growth. Supermicro's stock price has entered the territory where other companies have recently executed splits. The big question is: how does management plan to sustain and grow this valuation following its remarkable run?

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Supermicro's Strategic Position in the AI Market

Supermicro's AI-driven growth can be attributed to its innovative server architecture, rapid time-to-market, and energy-efficient designs. These strengths have allowed the company to capture a significant share of the AI server market, outpacing its performance in the traditional server market.

Despite its impressive growth, questions remain about the sustainability of this trajectory. Currently, Supermicro trades at 48.8 times trailing earnings and 24.8 times its 2025 earnings estimates.

AI Chips: Are They Peaking or Just Beginning?

Supermicro's growth has closely followed Nvidia's trajectory, as Supermicro's AI servers predominantly feature Nvidia's chips. Supermicro adds significant value through its server architecture, justifying a markup between 14% and 17%.

The future growth of Supermicro will be heavily influenced by the AI accelerator market, which is currently dominated by Nvidia but will soon see increased competition. Some industry experts caution that the current AI investment boom may taper off, while others, like AMD CEO Lisa Su and TSMC management, predict robust growth in the coming years.

Supermicro appears optimistic about the AI market's expansion. The company is set to bring its Malaysia factory online soon and has announced plans for three new manufacturing facilities in Silicon Valley, aiming to double its capacity for liquid-cooled "supercluster" servers.

The Role of Liquid Cooling in Supermicro's Future

One challenge facing the AI market is the substantial electricity required for operations. Supermicro's CEO, Charles Liang, believes the future of AI supercomputing hinges on liquid cooling technology. Currently, liquid cooling represents about 1% of the data center market due to its complexity and cost.

However, the high energy demands of AI chips make liquid cooling increasingly viable. According to Liang, liquid-cooled data centers can reduce operational expenses by 40%. Supermicro has been preparing for this shift, investing heavily in liquid-cooling technology. The company's inventory has increased as it accumulates parts for a significant push into liquid-cooled servers.

Liang predicts that liquid-cooled racks will grow from 1% of the data center market to 15% by 2025 and 30% by 2026. If Supermicro continues to innovate and lead in this area, it could maintain or even enhance its impressive valuation. This growth trajectory could very well lead to a stock split.

Conclusion

Super Micro Computer has seen tremendous growth, positioning itself as a leader in the AI server market. With strategic investments in liquid cooling and expanding manufacturing capacity, the company is poised for continued success. Investors should keep an eye on this stock, as its impressive performance and strategic initiatives suggest that a stock split could be on the horizon. To stay ahead with intelligent investment strategies, explore Intellectia.AI for more insights.