Tech company Super Micro Computer (NASDAQ:SMCI)  is best known for its partnership with artificial intelligence leader Nvidia (NASDAQ:NVDA). With companies investing heavily into AI, there is a growing need for electricity to run the AI servers, and with more advanced chips launching soon, the problem is only going to grow. To meet these power needs, companies have to make infrastructure changes and this is where Super Micro plays an important role. With companies adopting direct liquid cooling for AI server racks, the demand for Super Micro’s services has grown over time. 

AI Stocks to Buy

Nvidia creates Graphics Processing Units (GPUs) and SuperMicro builds the server architecture that allows different GPUs to work in sync. This is essential when companies use high processing power to run AI applications. It has built a strong position in the market and is an important industry player for all tech companies investing in AI. For many, SMC is all about its partnership with Nvidia but the company is so much more than that. 

One of the best-performing stocks in the AI boom, Super Micro Computer is up 92% year-to-date and is exchanging hands for $549. The stock has soared 100% in the past 12 months and was close to $1,200 earlier this year. Its earnings are growing over 100% and the stock is trading at a premium. We discuss further whether the stock is a buy. 

Strong Quarterly Results 

Super Micro recently reported results and its revenue jumped 144% to $5.31 billion while the gross margin dropped from 17% to 11.2%. This impacted the profit and the EPS came in at $6.25 but was still below estimates. The drop in gross margin has left investors worried but the management stated that it is aiming for a 14% to 17% improvement in the gross margin by introducing new platforms. I believe that the management will be able to see the gross margin bounce back and the current sell-off is a temporary reaction to the results. The company can bounce back and the stock is trading at a forward P/E of 14 based on the estimates. At this rate, the stock looks like a good deal. 

The investment and advancements in AI are not going to slow down anytime soon. Generative AI has helped several tech companies report impressive sales and profit numbers—additionally, SMCI stock soars whenever Nvidia moves higher. Once Nvidia reports the quarterly numbers, we could see SMCI stock enjoy a quick recovery. The company supplies servers needed for AI and as the demand for AI grows, the demand for servers will also see an improvement. 

If you look at the bigger picture, Super Micro has displayed robust performance and steady execution since the beginning of 2023. This has helped the stock hit new highs, making it one of the best AI stocks. The demand for AI hardware is massive and the company is well-positioned to make the most of it. 

Stock Split is a Well-Timed Move 

Further, the company has announced a stock split plan which could mean an ideal buying opportunity for investors. While a stock split does not have any impact on the financials of the company, it makes the stock affordable for investors to own. SMCI stock will begin trading on a post-split base from October 1. Currently trading for $549, the stock could be worth $54 post-split. The lower prices can attract new investors, leading to a higher demand for the stock. Ultimately, it is the business that matters.

The company has a strong track record that proves its worth. Its partnership with Nvidia is a cherry on the top and has benefitted Super Micro Computers in many ways. A revenue jump of 143% year-over-year and an EPS jump of 78% YOY is nothing short of impressive. Sales came in expectations but the profit fell short and this is where the company could improve. It is also working on a new production unit in Malaysia which can help boost sales. 

The Future is AI 

If you missed out on the opportunity to buy Nvidia while it was cheaper, you can still make the right moves and get your hands on the next Nvidia.

The future is AI and tech companies with heavy investments in AI will keep seeing higher growth in the next five years. We’ve identified the next Nvidia for you. Buy it before it skyrockets. Click here to read our report. 

SMCI is a Buy 

The demand for AI is massive and the worldwide market is expected to hit $1.3 trillion by 2032, this means Super Micro is not going to have demand issues. If it can continue at the same level of execution, it could become one of the best tech stocks to own. Even if you ignore the upcoming stock split, buy the stock for its rich history, impressive financial performance, and strong market hold. No other company has been able to achieve what SMC has managed to. 

The current dip in the stock is temporary and the concerns about a drop in profit are overdone. Moreover, the management is positive about the sales and the guidelines indicate the same. The management raised its full-year outlook for fiscal 2025 and is aiming for revenue in the range of $26 to $30 billion. 

A low-profit margin is no reason to stay away from this attractive tech stock. SMCI is one of the best AI stocks to buy. 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.