Why Super Micro Computer Shares Are Up 13% This Morning


What happened

Actions of Super microcomputer (NASDAQ: SMCI) were up 13% today as of 12:35 p.m. EDT. The data center and server hardware vendor that touts itself as an energy efficient technologist reported profits for its first quarter of fiscal 2022 (the three months ending September 30). Both revenue and earnings per share (EPS) were well above what the average Wall Street analyst expected.

Specifically, sales increased 35% year-over-year to $ 1.03 billion, and adjusted earnings per share rose 5% to $ 0.58.

Image source: Getty Images.

So what

The demand for computer hardware is increasing in large companies. With cloud computing quickly becoming the standard for IT operations, a cycle of upgrade in data centers is underway. Super Micro is taking advantage of this trend and its efficient electronic equipment can help its customers reduce their energy consumption and carbon emissions. The company has a long-term goal of reaching $ 10 billion in annualized revenue as this massive business migration to the cloud takes place over the next decade.

With growing demand and a global shortage of chips extending lead times to sell, Super Micro’s current rate of growth is expected to continue for the foreseeable future. Management expects FY2022 revenue to be $ 4.6 billion, an increase of 29% over last year within the upper limit of expectations.

Now what

Super Micro has had a great quarter, but there are a few things that need to be considered before building up in this stock. Super Micro – which relies on designers of semiconductors and other electronic components like Intelligence, Advanced micro-systems, and Nvidia as key partners – is a historically low margin business. Gross profit margin was a meager 13% in the last quarter despite booming sales. The company has grown steadily over the years, but sales of computer hardware are cyclical in nature and Supermicro’s profitability has remained low at best even as it has grown.

Still, with the stock trading at 20 and 35 times past 12-month earnings per share and free cash flow, respectively, this stock may be of interest to some value investors.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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