Supermicro (NASDAQ: SMCI), a leading provider of rack servers and storage solutions, saw its stock price surge by 11.3% on Wednesday, following a bullish note from Barclays analysts. The analysts raised their one-year price target from $691 to $961, citing strong demand for artificial intelligence (AI) applications that require high-performance computing. Supermicro has been one of the best-performing stocks in the tech sector, with a staggering 872% gain over the past year. But is there still room for growth, or is it too late to buy this red-hot AI growth stock?

How Supermicro Benefits from AI

Supermicro specializes in building customized servers and storage systems for various industries and applications, such as cloud computing, big data, gaming, and AI. The company offers a wide range of products, from blade servers and microservers to GPU servers and edge computing devices. Supermicro’s competitive advantage lies in its ability to deliver high-quality, low-cost, and energy-efficient solutions that meet the specific needs of its customers.

AI is one of the fastest-growing segments in the server market, as more and more businesses and organizations adopt AI technologies to enhance their products and services, such as natural language processing, computer vision, machine learning, and deep learning. AI applications require massive amounts of data and computing power, which creates a huge demand for servers that can handle complex calculations and algorithms.

Supermicro is well-positioned to capture this opportunity, as it offers a variety of AI-optimized servers that support the latest processors and accelerators from Intel, AMD, and Nvidia. Supermicro’s GPU servers, in particular, are designed to deliver superior performance and scalability for AI workloads, such as training and inference. Supermicro is also a partner of Nvidia’s HGX program, which aims to provide standardized and optimized hardware platforms for AI and high-performance computing.

Super-micro’s Impressive Financial Performance

Supermicro’s financial results reflect its strong growth momentum in the AI segment. In the second quarter of fiscal 2024, which ended on December 31, 2023, the company reported revenue of $1.9 billion, up 78% year over year and 18% sequentially. This was well above the company’s own guidance of $1.65 billion to $1.75 billion and also beat the consensus analyst estimate of $1.69 billion.

The company’s earnings were even more impressive, as it posted net income of $253 million, or $4.76 per diluted share, compared to $62 million, or $1.22 per diluted share, in the same period a year ago. This was also significantly higher than the company’s guidance of $3.35 to $3.85 per diluted share and the analyst estimate of $3.51 per diluted share.

Supermicro attributed its strong performance to the robust demand for its products across all regions and segments, especially in AI, cloud, and enterprise markets. The company also benefited from its operational efficiency, supply chain management, and product innovation.

Looking ahead, Supermicro expects to continue its growth trajectory in the third quarter of fiscal 2024, with revenue guidance of $2.0 billion to $2.2 billion and earnings guidance of $4.40 to $5.00 per diluted share. Both ranges are well above the analyst expectations of $1.77 billion in revenue and $3.68 in earnings per diluted share.

Is Supermicro stock still a buy?

Supermicro’s stock has been on a phenomenal run, as it has outperformed the S&P 500 index, the Nasdaq Composite index, and its peers in the server industry by a wide margin. The stock currently trades at $89.06 per share, giving it a market capitalization of $49 billion. This means that the stock has a trailing 12-month price-to-earnings (P/E) ratio of 46.7 and a forward P/E ratio of 44.4, based on the analyst estimates for fiscal 2024.

These valuation multiples are not cheap, but they are not unreasonable either, considering Supermicro’s impressive growth potential in the AI market. According to a report by IDC, global spending on AI systems is expected to grow at a compound annual growth rate (CAGR) of 17.1% from 2023 to 2028, reaching $341.8 billion by 2028. Supermicro has a strong competitive position in this market, as it offers a diverse portfolio of AI-optimized servers that can cater to various customer needs and preferences.

Moreover, Supermicro has a loyal customer base, as it has established long-term relationships with some of the leading players in the AI space, such as Google, Facebook, Amazon, Microsoft, and Nvidia. These customers account for a large portion of Supermicro’s revenue, and they are likely to continue to use Supermicro’s products as they expand their AI capabilities and infrastructure.

Therefore, Supermicro stock still has room for growth, despite its already impressive rally. Investors who are looking for a way to capitalize on the AI trend should consider adding this stock to their portfolio, as it could deliver more gains in the long run.