Super Micro Computer (SMCI): A Hidden AI Powerhouse with 54% Earnings Growth
We recently published a list of 10 Worst Affordable Stocks To Buy Right Now. In this article, we are going to take a look at where Super Micro Computer, Inc. (NASDAQ:SMCI) stands against other worst affordable stocks to buy right now.
How is the Market Performing Entering the Rate Cuts
In one of our recent articles regarding the 10 Hot Penny Stocks On the Move, we discussed how the overall macroeconomic conditions have played a crucial role in building an environment leading to the upcoming Fed rate cut. Hereโs an excerpt from the piece:
โThe economy of the United States has stabilized, the risks of a recession have been delayed, and inflation continues to cool down. On August 30, Reuters reported that the Federal Reserve received a fresh confirmation regarding inflation continuing to ease. The personal consumption expenditure price index rose 2.5% year-over-year in July and inflation has stayed within the 2% goal set by the Fed. Fed Chairman has indicated that the โtime has come to cut ratesโ.
Moreover, in another report by Reuters on the same day there were reports of the US dollar gaining as another key inflation measure fell in line with the forecasts. The Fed is expected to cut rates by 25 basis points this month. Moving forward markets have forecasted 100 bps of cuts by the end of 2024.
The stock market is already riding the tide of expected interest rate cuts. On August 20, CNBC reported that the stock market was climbing yet again, putting the S&P 500 and NASDAQ on track for their eighth positive session in a row, marking their longest winning streak this year.โ
While there has been a debate about a 25-point or a 50-point cut, the market has fluctuated before the announcement. On September 17, CNBC reported that the S&P 500 was lower after reaching a record high on Tuesday. The market reached a new record high of 5,670.81 and was down 0.1% at 5,627. The Nasdaq moved 0.1% higher whereas the Dow Jones fell by 40 points.
The traders have overcome the summer headwinds and moved past the concerns over the health of the US economy on the back of expectations of the Fed cutting interest rates. On the other hand, Wall Street has been on hold. Analysts are hoping the rate cuts will help boost the earnings growth for companies.
Tom Lee, Fundstrat Global Advisors co-founder, joined CNBC to talk about how the market is expected to perform moving into the fed rate cuts and after the announcement. Lee believes that one of the factors leading to confusion among investors is the election period. The market is expected to stay in a fluctuating environment for the next eight weeks until the elections are over. However, fed rate cuts are coming at a crucial time to give some positive for the market.
There are two main reasons leading up to the rate cuts, one being the inflation easing and the other being the slower labor market that needs help from the Federal Reserve. Moreover, Lee thinks that regardless of the Fed deciding on a 25-point or 50-point cut, the result is going to be positive for the market. He thinks that investors should be confident for the next 12 months as whenever the Fed cuts rates, the win ratio for the markets has been almost 100%. Moreover, the markets rally post-elections regardless of who takes the seat.
Our Methodology
For compiling the list of 10 worst affordable stocks to buy right now, we used the Finviz stock screener. We set our filters to get affordable stocks with high short interest i.e. stocks trading below the market average Forward P/E which is 23.79, expecting positive earnings growth this year, and have high short interest. From the list of affordable stocks, we selected 20 stocks that were most widely held by institutional investors. Once we had the aggregated list, we ranked them based on their Short % of Shares Outstanding, sourced from Yahoo Finance. Please note that the list is ranked in ascending order of the short interest.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletterโs strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of technicians in a server room, testing and managing the newest server solutions.
Super Micro Computer, Inc. (NASDAQ:SMCI)
Forward P/E Ratio: 13.59
Earnings Growth This Year: 54.30%
Number of Hedge Fund Holders: 47
Short % of Shares Outstanding: 14.96%
Super Micro Computer, Inc. (NASDAQ:SMCI) is one of the prominent players in a swiftly growing data center industry. The company offers a wide range of high-performance servers and storage solutions. Its solutions are used in various high-growth industries such as data centers, cloud computing, artificial intelligence, 5G networking, and edge computing.
Moreover, it is differentiated due to its cutting-edge direct liquid cooling technology that solves one of the major issues of high energy consumption in the data centers and AI market. The short interest of 14.96% as a percentage of shares outstanding makes Super Micro Computer, Inc. (NASDAQ:SMCI) one of the worst affordable stocks to buy right now. Its financial performance says otherwise.
The strong demand from AI customers resulted in the company delivering record sales in a single quarter that surpassed its full-year performance in 2021. The revenue for the fiscal fourth quarter of 2024 improved more than 143% year-over-year, to deliver $5.3 billion during the quarter.
Super Micro Computer, Inc. (NASDAQ:SMCI) also achieved significant milestones during the quarter. It became the first to market 8U AI NVIDIA H100 Liquid Cooled Clusters. Moreover, the company is also developing Supermicro 4.0 DCBBS, a data center building block solution that will significantly reduce the time to build new data centers for its customers.
Stated that the company operates in a series of high-growth markets and its products go hand in hand with tech giants such as NVIDIA, the future of the company looks bright. Management has also raised their next quarter revenue guidance and now expects revenue growth between 183% and 230%.
Lastly, its cheap valuation also aids the bull case thesis for Super Micro Computer, Inc. (NASDAQ:SMCI). The stock is trading at 14 times its forward earnings while the market average sits at 23. Its earnings are also expected to grow by 54% during the year to reach $34.09. SMCI was held by 47 hedge funds in Q2 2024, with total positions worth $1.46 billion.
Overall SMCI ranks 5th on our list of the worst affordable stocks to buy right now. While we acknowledge the potential of SMCI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SMCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.