Super Micro Computer (NASDAQ: SMCI) announced its fiscal 2024 fourth-quarter results on Aug. 6, causing the stock to fall 20% as investors were concerned about the company’s shrinking margin profile. Despite the disappointment, the company’s revenue showed remarkable year-on-year growth, and its guidance for fiscal 2025 suggests that this strong growth trend is expected to continue. The management also announced a 10-for-1 stock split, which is set to take effect on Oct. 1. However, the company’s earnings per share were significantly below analysts’ expectations, leading to the stock decline.
While a stock split may not fundamentally change a company’s performance, it does increase the share count by reducing the price of individual shares, making ownership more accessible to a wider pool of investors. Super Micro Computer’s decision to split its stock, given its previous surge in stock price, was not unexpected. However, the split is unlikely to have a major impact on the company’s growth prospects or help to reverse its recent stock performance decline. Nevertheless, a closer look at the company’s recent results, guidance, and valuation suggests that investing in the company after the pullback might be a strategic move.
Super Micro Computer finished fiscal 2024 with impressive revenue and earnings growth, with revenue reaching $14.94 billion and non-GAAP earnings of $22.09 per share. Despite the strong revenue growth, the company experienced a contraction in margins due to significant investments being made to increase manufacturing capacity in AI servers. The company is strategically focusing on increasing production capacity for AI servers, especially direct liquid cooling servers, to capitalize on the market’s growth potential. Management expects margins to improve throughout fiscal 2025 as new products begin to ship in higher volume.
Looking ahead, Super Micro Computer anticipates another year of solid revenue growth in fiscal 2025, with revenue expected to range between $26 billion and $30 billion. The company also forecasts a significant increase in non-GAAP earnings, pointing towards a promising future for the company. Despite the recent stock price decline, Super Micro Computer’s current valuation, with low forward earnings and sales multiples compared to the U.S. technology sector average, indicates that the stock may have strong growth potential in the upcoming fiscal year.
Investors considering investing in Super Micro Computer should take into account the company’s recent performance, growth prospects, and valuation compared to its industry peers. While the stock split announcement may not be a game-changer, the company’s focus on expanding its AI server market share and improving margins suggest a positive outlook for the company’s future performance. Overall, Super Micro Computer’s pullback in stock price presents an opportunity for savvy investors to capitalize on the company’s growth potential in the AI market.
