This specialist in artificial intelligence (AI) hardware is rapidly gaining market share.
The pace of adoption of artificial intelligence (AI) has only accelerated in the past year, leading to a shift in the ranks of some of the world’s largest companies, with several household names vying for the honour. Microsoft currently leads the group, after defeating the others Appleeach with a market capitalization of approximately $3.4 trillion. Nvidia‘s rise through the ranks has been breathtaking to watch, nearly tripling in size over the past year to take third place at $3 trillion. Several other major AI vendors, namely Alphabet, AmazonAnd Meta platformsare valued at between $1.3 trillion and $2.3 trillion.
With a market cap of just $49 billion (at the time of writing), it may seem sacrilegious to suggest that Supermicrocomputer (SMCI -0.05%)also known as Supermicro, could be on its way to the $1 trillion club. However, the increasing adoption of AI has increased the need for servers that can run and train AI systems, and the company’s long track record makes Supermicro a clear candidate for inclusion in this elite fraternity.
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Flexible server options
While Supermicro has made waves in recent years, investors may be surprised to learn that the company has been making custom servers for more than three decades. The growing adoption of generative AI has shone a light on the under-the-radar server maker, bringing it out of the shadows.
Supermicro’s claim to fame is its highly customizable building-block architecture, which helps it provide server solutions for customers of all shapes and sizes. Additionally, Supermicro’s long-standing focus on energy efficiency has become more important as cost becomes a factor. It also offers a variety of free-air, liquid cooling, and traditional air cooling technologies, ensuring that every customer gets exactly what they’re looking for.
The company has partnerships with all the leading chipmakers, giving it access to the most sought-after AI processors. This includes strong working relationships with Nvidia, Advanced micro devicesAnd Intelamong other things.
This approach has served the company well. For the third quarter of its fiscal 2024 (ended March 31), Supermicro saw revenue increase 200% year over year to $3.85 billion, while earnings per share (EPS) of $6.65 jumped 308%. Management predicts the triple-digit growth will continue, raising its full-year guidance to revenue of $14.9 billion and adjusted EPS of $23.69, which would represent growth of 109% and 100%, respectively.
Management reports that Supermicro is close to 20 times the industry average, which clearly shows that the company is taking market share from its competitors. Analysts at bank of america That’s a figure that suggests Supermicro will grow its market share from 10% last year to 17% in 2026.
The Path to $1 Trillion
Supermicro is one of the leading names in the AI server market. The company’s agility has been key to gaining market share from its rivals, as its building block server architecture means it has something for everyone. Supermicro has also forged key partnerships with chipmakers that supply it with the most in-demand processors, ensuring it has sufficient supply to meet the increasing demand.
Despite those advantages, it will still be a while before Supermicro reaches the trillionaire ranks. According to Wall Street, Supermicro is on track to generate $14.9 billion in revenue by 2024, giving it a forward price-to-sales (P/S) ratio of about 3.3. Assuming P/S remains constant, Supermicro would need to grow its revenue annually to about $305 billion to support a $1 trillion market cap.
It’s important to put this into context: the company is expanding its production capacity to generate $25 billion in annual revenue, so nearly a 20x revenue increase is still a long way off in the near future.
If the company can maintain its triple-digit year-over-year growth rate, Supermicro could hit a market cap of $1 trillion by 2029. However, it would be unprecedented for an established company to sustain that frenetic growth rate for five years. But even if we halve the growth rate, Supermicro could theoretically hit a market cap of $1 trillion by 2032.
While that may sound far-fetched, the evidence suggests it’s more likely than you might think. BofA analyst Ruplu Bhattacharya said the AI data center market will grow at a 50% compound annual growth rate (CAGR) over the next three years, and by taking market share from its rivals, Supermicro’s revenue “could grow even faster.”
He’s not alone in thinking the data center upgrade cycle is about to kick in. Nvidia CEO Jensen Huang believes the installed base of data centers will double to $2 trillion over the next four to five years to support the accelerated adoption of AI.
So if Supermicro can capture even a small share of that fast-growing market, the road to the $1 trillion club will be paved with profits.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, the former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, the former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena has positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Super Micro Computer. The Motley Fool has positions at and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Bank of America, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long Jan 2025 $45 calls on Intel, long Jan 2026 $395 calls on Microsoft, short Aug 2024 $35 calls on Intel, and short Jan 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.