Will a super microcomputer be worth more than Intel by 2027?

By | March 2, 2024

Super microcomputer (NASDAQ: SMCI) And Intel (NASDAQ: INTC) have been in the spotlight over the past year thanks to both companies’ ability to capitalize on the booming demand for artificial intelligence (AI) chips. But when we take a closer look at the share price performance of both companies, we see that investors are strongly favoring one company over the other.

While the stock prices of Super Micro Computer (which does business as Supermicro) are up a whopping 776% over the past year, Intel has posted a relatively modest but solid 71% gain, beating expectations. PHLX semiconductor sector index’s 57% gain. The extraordinary rise in Supermicro shares has taken its market capitalization from $5 billion a year ago to over $48 billion at the time of writing.

Intel’s market cap, on the other hand, has risen from $104 billion a year ago to $181 billion at the time of writing. Supermicro has therefore seen a much larger increase in its market capitalization over the past year. But can it continue to surpass Intel in the stock market and become a bigger company in terms of market capitalization by 2027? Let’s find out.

Super Micro Computer expects to grow faster than Intel

A key reason why the market has rewarded Supermicro stock with eye-popping gains is the company’s stellar revenue and profit growth. A closer look at the chart below shows that Supermicro significantly outperformed Intel’s top and bottom line results.

SMCI revenue (quarterly) chartSMCI revenue (quarterly) chart

SMCI revenue (quarterly) chart

A closer look at both companies’ latest financial results shows why investors have piled into Supermicro stock. Growing demand for AI chips proved to be a bigger tailwind for Supermicro compared to Intel. That’s because Supermicro’s server rack solutions allow data center operators to economically deploy AI accelerators so they can reduce cooling and electricity costs while keeping performance at optimal levels.

It is worth noting that Supermicro’s AI server solutions are used to mount Intel AI chips, NvidiaAnd Advanced micro devices. So it doesn’t matter which of these chipmakers sells the most AI chips, because data center operators will likely turn to Supermicro for their modular server solutions. The company therefore sees robust revenue growth, but also needs to invest aggressively in capacity expansion.

Supermicro’s revenue in the second quarter of fiscal 2024 (ending December 31, 2023) more than doubled year-over-year to $3.66 billion. The company expects revenue of $3.9 billion for the current quarter, at the midpoint of expectations, which would be three times the revenue of a year ago.

So, Supermicro’s growth is all set to step on the gas in the current quarter. Additionally, the company expects to end the year with revenues of $14.5 billion, compared to revenues of $7.1 billion in fiscal 2023. That would be a significant increase from the $7.1 billion in revenues it generated in the previous fiscal year.

Intel, on the other hand, has not yet been able to benefit from the AI ​​chip boom, as this market is currently dominated by Nvidia. Intel’s fourth-quarter 2023 revenue rose 10% year-over-year to $15.4 billion, while full-year revenue fell 14% to $54.2 billion thanks to weakness in the PC market.

It’s worth noting that Intel’s AI-related revenue pipeline is well over $2 billion, according to management’s January earnings conference call. Supermicro, meanwhile, generates more than half of its revenue from the sale of AI server solutions. So AI is driving growth in a more meaningful way for Supermicro, and as a result, its business is growing much faster.

More importantly, Supermicro is increasing its manufacturing capacity and believes its efforts can help increase its annual sales capacity to $25 billion. That would be almost double the company’s revenue forecast for the current fiscal year. It should come as no surprise that Supermicro will achieve that goal over the next three years, as demand for AI servers is expected to increase fivefold between 2023 and 2027.

Assuming Supermicro achieves $25 billion in fiscal 2026 revenue, its three-year compound annual growth rate (CAGR) would be 52%, based on fiscal 2023 revenue of $7.1 billion. Intel’s revenue, on the other hand, is expected to rise at a much slower pace of 6% to $57 billion in the current fiscal year, followed by double-digit increases in 2025 and 2026.

INTC revenue estimates for the current fiscal yearINTC revenue estimates for the current fiscal year

INTC revenue estimates for the current fiscal year

However, will Supermicro’s faster growth make it a bigger company than Intel?

Can Chipzilla be overtaken by Supermicro?

Assuming that Supermicro does indeed generate $25 billion in annual revenue within the next three years and maintains its current price-to-sales ratio of 5.4 at that time, its market cap could rise to $135 billion. That would be almost three times the company’s current market capitalization. Intel, meanwhile, currently trades at 3.4 times sales. A similar sales multiple after three years would take the market cap to $242 billion, a 33% jump from current levels.

So Intel will likely remain the bigger company after three years, but it’s worth noting that Supermicro has the potential to provide investors with a much stronger advantage. Supermicro isn’t that expensive compared to Intel in terms of sales figures, especially considering the eye-popping growth it delivers. So it could be a good idea for investors to buy Supermicro as it has the potential to continue its rally and remain a red-hot growth stock.

Should You Invest $1,000 in Super Micro Computer Now?

Consider the following before buying shares in Super Micro Computer:

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and Super Micro Computer and recommends the following options: long January 2023 calls $57.50 on Intel, long January 2025 calls $45 on Intel, and short February 2024 calls $47 on Intel. The Motley Fool has a disclosure policy.

Will a super microcomputer be worth more than Intel by 2027? was originally published by The Motley Fool

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