Super Micro Stock: 3 Reasons to Buy Before It's Too Late

Super Micro Computer's low valuation and "picks and shovels" business model make it a compelling long-term pick for investors. Despite challenges from tariffs and operational issues, the company is still growing, with an 8% increase in top-line revenue compared to the prior year period. The AI hardware opportunity looks resilient, and Super Micro operates on the hardware side of the industry, making it a less uncertain investment compared to software companies.

Super Micro Computer (SMCI) has emerged as a potential long-term investment pick for investors seeking exposure to the AI hardware market. Despite recent challenges, the company's low valuation and "picks and shovels" business model present compelling reasons to consider SMCI as a strategic addition to a diversified portfolio.

The AI hardware opportunity appears resilient, with only 5% of AI pilot programs delivering rapid revenue acceleration, according to a report from the Massachusetts Institute of Technology (MIT) [1]. This suggests a learning curve for companies integrating generative AI into their workflows, similar to the early days of the internet. Super Micro operates on the hardware side of AI, selling computer servers and liquid cooling systems for data centers, which positions it as a less uncertain investment compared to software companies.

Super Micro's recent earnings report highlighted operational challenges, with revenue coming in at $5.76 billion compared to analysts' expectations of $5.89 billion [1]. The company cited tariffs as a key factor impacting its globalized manufacturing supply chain. However, SMCI is still growing, with its top line increasing by 8% compared to the prior year period, indicating sustained demand for its products. The company aims to mitigate near-term margin hits by expanding its U.S. manufacturing capabilities in California and potentially in lower-cost states like Mississippi and Texas.

One of the most attractive aspects of investing in Super Micro is its rock-bottom valuation. Shares trade at a 64% discount to their all-time high of $118, reached in March 2024, despite the company's struggles with delayed financial filings and a discredited short-seller report [1]. With a forward price-to-earnings (P/E) multiple of 17, SMCI is significantly discounted compared to other AI hardware alternatives like Nvidia and Advanced Micro Devices, which boast forward P/Es of 40 and 43, respectively.

While Super Micro may not possess the economic moat or growth potential of specialized chipmakers, its value-oriented profile makes it an attractive pick in the highly hyped AI industry. Investors should weigh these factors carefully before making a decision, as the Motley Fool Stock Advisor team did not include SMCI in its latest top 10 list [1].

References:
[1] https://finance.yahoo.com/news/3-reasons-buy-super-micro-101500950.html
[2] https://www.nasdaq.com/articles/3-reasons-buy-super-micro-stock-its-too-late