Let’s cut to the chase: The ability of generative artificial intelligence (AI) to automate certain tasks and increase productivity has captured the attention of businesses everywhere. Generative AI can draft original documents, summarize existing data, create presentations, and even write and debug computer code — and new use cases are being discovered regularly.
Cathie Wood, the enigmatic founder of Ark Investment Management, has long focused on disruptive innovation, and her view on the potential of generative AI is eye-opening. “AI is going to enable the most massive productivity increase in our history,” she said. “The productivity gains are going to be astounding and shocking.”
One company at the heart of this secular tailwind is Super Micro Computer(NASDAQ: SMCI), also known as Supermicro. The stock has ridden the wave of AI higher over the past year, but there could be much more to come.
Image source: Getty Images.
Servers of the stars
While it may not be a household name, Supermicro has burst on the scene over the past year or so as one of the leading providers of servers used in enterprise data centers, cloud computing, and AI systems. The company offers a broad selection of servers and storage systems, from full plug-and-play systems to modular components. Supermicro also provides a helping hand to customers to install and upgrade their computing infrastructure.
The company has been developing cutting-edge server and storage systems for more than three decades. So when the opportunity represented by generative AI came knocking, Supermicro was there to answer the call.
Supermicro works closely with Nvidia, Advanced Micro Devices, and Intel, among others, to ensure its servers have a steady supply of — and work seamlessly with — the latest and greatest AI-centric processors.
A vast and growing opportunity
While AI has been around for decades, generative AI is the next giant leap forward in the technology. The previously mentioned potential to vastly increase productivity sets the technology apart from its predecessors. Businesses are also looking to gain an edge, and the ability to save time and money has companies of all types looking to get a slice of the pie.
While estimates are a dime a dozen, no one can offer a definitive value of the size of the market. Generative AI could represent a $1.3 trillion market by 2032, according to Bloomberg Intelligence. A more bullish take can be found in Ark Invest’s Big Ideas 2024 report, where Cathie Wood suggests that the AI software market alone could generate incremental spending of $13 trillion by the end of the decade. While the size of the market is still elusive, one thing is clear: The opportunity is sizable.
Blockbuster results
Supermicro’s results help illustrate the opportunity. For the company’s fiscal 2024 second quarter (ended Dec. 31), Supermicro generated net sales of $3.66 billion, which soared 103% year over year and 73% sequentially. At the same time, adjusted earnings per share (EPS) of $5.59 represented a 71% surge. The company noted its record growth was driven by demand for rack-scale systems used for AI.
Management expects the company’s growth spurt to continue. Supermicro is forecasting third-quarter revenue in a range of $3.7 billion to $4.1 billion, representing 205% year-over-year growth at the midpoint of its guidance. Profit is also expected to surge, with adjusted EPS of roughly $5.61, up 244%. The company also raised its full fiscal-year revenue guidance to a range of $14.3 billion to $14.7 billion, an increase of at least 100%.
CEO Charles Liang addressed the ongoing demand, noting, “Overall, I feel very confident that this AI boom will continue for another many quarters, if not many years.”
Supermicro is chasing a total addressable market it estimates at $25 billion. To meet the strong and growing demand, management has broken ground on two new production facilities near its Silicon Valley headquarters, in addition to the manufacturing facility already slated to come online in Malaysia.
A compelling opportunity
Super Micro Computer stock has been growing like wildfire, up 766% over the past year as of this writing. With gains of that magnitude, you’d be tempted to believe the stock has gotten quite pricey, but nothing could be further from the truth. Despite its parabolic ascent, the stock still trades for just 2 times next year’s sales — the benchmark for an affordable stock.
The bargain-basement price, strong and growing demand for its products, and the secular tailwinds represented by AI illustrate why Supermicro is well positioned to benefit from this once-in-a-generation opportunity.
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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
