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Will Super Micro Computer Be a Trillion-Dollar Stock by 2050?

Motley Fool - Tue Oct 24, 2023

Super Micro Computer(NASDAQ: SMCI), better known as Supermicro, has been one of the market's hottest AI stocks. The producer of high-performance servers didn't gain much attention after its initial public offering in 2007, but its stock has skyrocketed nearly 1,200% over the past four years as the AI boom lit a fire under its business. Its partnership with Nvidia to sell pre-built AI servers reinforced that bullish thesis and enabled it to grow its market share against Hewlett-Packard Enterprise and Dell Technologies.

That massive rally boosted Supermicro's enterprise value to $13 billion, but it's still a lot smaller than HPE ($30 billion) and Dell ($67 billion). It's also tiny compared to Nvidia, which has an enterprise value of $1.02 trillion. Could Supermicro eventually follow Nvidia's lead and become a $1 trillion company by 2050?

An IT worker uses a laptop in a data center.

Image source: Getty Images.

The mathematical case for a trillion-dollar valuation

Analysts expect Supermicro's revenue to grow at a compound annual growth rate (CAGR) of 20% from $7.1 billion in fiscal 2023 (which ended this June) to $12.3 billion in fiscal 2026.

That growth will likely be driven by the secular expansion of the AI market. The global AI market could still grow at a CAGR of 37% from 2023 to 2030, according to Markets and Markets. Foxconn Chairman Liu Yangwei also recently predicted that the market for dedicated AI servers would grow at a CAGR of nearly 50% from 2023 to 2027.

Therefore, it seems like Supermicro could easily generate $12.3 billion in revenue in fiscal 2026. If it hits that target and keeps growing at a CAGR of 20% through fiscal 2030, it could generate $25.5 billion in revenue by the final year.

The AI market should gradually mature over the following two decades, so we should assume that Supermicro's growth will eventually slow down. But if it grows its top line at a CAGR of 15% from 2030 to 2040, then continues to grow at a CAGR of 10% from 2040 to 2050, it could still generate $415 billion in annual revenue by that final year.

If Supermicro still trades at about two times its annual sales in 2050, its enterprise value could reach $830 billion. But that's actually a pretty low valuation, which classifies Supermicro as a legacy server maker like HPE and Dell -- which both trade at less than 1 times this year's sales -- instead of a high-growth AI company like Nvidia.

So if investors are willing to value Supermicro at just 3 times its annual sales in 2050, its enterprise value could surpass $1.2 trillion. That would represent a staggering 92-bagger gain from its current valuations.

But let's not count our chickens before they hatch

Supermicro has a clear shot a joining the 12-zero club by 2050, but it's impossible to predict what will actually happen over the next three decades. HPE or Dell might acquire Supermicro if it gains too much ground in the AI server market, new competitors might enter the ring, or a deep global recession could abruptly end the AI boom.

Supermicro is also exposed to geopolitical tensions. Back in 2006, it was fined for violating U.S. trade sanctions by indirectly exporting its motherboards to Iran. In 2019, it stopped outsourcing its manufacturing to Chinese companies amid allegations that those partners had secretly installed spy chips into its motherboards. If Supermicro gets entangled in another scandal as the tech war escalates between the U.S. and China, it could be slapped with brand-tarnishing fines and trade restrictions.

So instead of worrying about where Supermicro's stock might end up in 2050, investors should focus on its foreseeable future instead. Supermicro is still growing rapidly, it has plenty of irons in the fire, and it looks surprisingly cheap compared to other AI stocks. In other words, it's still a rock-solid growth stock to own right now.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.

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