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Proprietary Data Insights Financial Pros’ Top Computer Hardware Stock Searches in the Last Month
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Financial Pros Backdoor Play on AWS |
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Amazon Web Services did over $80 billion in revenues over the last year. But have you ever wondered who built those servers? Since 2019, a large chunk of them came from a Super Micro Computer (SMCI), a little-known data server provider. In fact, their servers run Facebook, Netflix, NVIDIA, Alibaba, Baidu, and many more. We caught onto this stock after financial pros sent search volume soaring after the company’s earnings announcement. Rarely do we find value plays with growth. But SMCI could be that unicorn we’ve been searching for. Super Micro Computer’s Business A trailblazer in high-efficiency, high-performance server tech, SMCI isn’t your typical server vendor. The 2,600 workforce delivers customized servers for over 1,000 customers in a wide array of industries. Their portfolio reads like a server lover’s wish list: server systems, server boards, power supplies, storage and networking devices, and even nifty accessories. Oh, and they toss in system integration, testing, and warranty services like they’re sprinkles on a sundae. Revenues break down by server and storage systems vs subsystems & accessories as well as by vertical markets:
Source: SMCI Q4 ‘23 Investor Relations Fast forward to their recent quarterly results, and it’s like Christmas in August. On August 3rd, the company reported a net income of $48 million—jumping from last year’s $28 million. Revenue soared 12%, hitting $960 million on the nose. But hold your applause; they did face some headwinds like material inflation and supply chain hiccups. Still, it’s hard to argue with numbers, especially when they’re trending upward. Financials
Source: Stock Analysis SMCI grew revenues an average of 28.7% over the last three years and 16.2% over the last five. That’s pretty amazing, considering the computer hardware business is quite mature and commoditized. Equally impressive, gross margins expanded from 15.4% to 18.0%, while free cash flow margin jumped from -9.4% to 8.8%. That’s thanks to the company’s multi-pronged strategy to focus on high-margin products, such as server system components. These high-margin items went from 62% of total revenues in 2022 to 68% in 2023. Plus, the company improved manufacturing and supply chain efficiency. Valuation
Source: Stock Analysis SMCI isn’t extremely cheap on a P/E or price-to-cash flow basis. Hewlett Packard (HPQ) and Dell (DELL) trade at much cheaper valuations PE ratios, while every competitor trades at a cheaper price-to-cash flow ratio. However, there’s a reason for that… Growth
Source: Seeking Alpha SMCI has the best growth in the group across almost every category. Its average growth and forward growth on revenues dominate its peers. Plus, its margin improvements gave it better EBIT and EBITDA growth than its competitors. Profitability
Source: Seeking Alpha Now, SMCI doesn’t have the best gross margins…yet. And we don’t expect they’ll ever hit the same levels as Pure Storage (PTSG) or Logitech (LOGI), which make different types of computer hardware. But, we believe there’s room for improvement on the free cash flow margin.
Our Opinion 7/10 SMCI is making all the right moves. And even at this price, they’re not that expensive, given their growth trajectory. However, with the stock up almost 200% in just a few months, we’d wait for a decent pullback before jumping on board. Anything under $200 would be a great price. |
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