More Upside Than Nvidia

Super Micro Computer, a data center solutions provider, is projected to experience significant revenue growth, with estimates suggesting a 90% increase in FY 2025, reaching approximately $28 billion. This surge is driven by strong demand for AI and accelerated computing solutions as tech companies invest heavily in these areas. However, growth is expected to slow in subsequent years due to economic uncertainties and a shift in focus towards return on investment by major tech firms. The company anticipates that its sales could grow by 18% to $33 billion in FY 2026, with a potential for further growth of 35% annually between FY 2026 and FY 2027, which could elevate revenues to around $52 billion. Super Micro's strategy includes offering more premium products, such as liquid-cooling systems, which are expected to be installed in a significant portion of server racks. As the company navigates supply chain challenges, its adjusted net margins have shown improvement, increasing from 6% in FY 2022 to 9% in FY 2024. This trend is expected to continue, with projections indicating margins could reach approximately 12.5% by FY 2027. The anticipated expansion in margins is attributed to better economies of scale and a favorable product mix. Despite these positive indicators, investor skepticism remains regarding the company's ability to achieve the projected earnings growth of 5x over the next few years. The ongoing compliance-related issues also pose a risk, creating uncertainty around the stock's future performance and valuation.