AI stock soars on new guidance (it's not Nvidia!)

Last September, Supermicro Computing  (SMCI) - Get Free Report reached a milestone. The San Jose, Calif.-based server maker marked its 30th anniversary, and president and CEO Charles Liang wanted to share the love.

“Supermicro has been and continues to be my dream work," Liang said in a letter posted on the company's website. Now that artificial intelligence is becoming pervasive, Liang said, "Supermicro continues to be committed to being the industry leader in creating the most performant and energy-efficient systems from the data center to the edge."

In 1993, it was a five-person operation run by Chiang and his wife Sara Liu, co-founder and senior vice president. Now, Supermicro has over 4,000 employees with facilities in the Netherlands and Taiwan, as well as Silicon Valley, a market capitalization of roughly $22.5 billion, and a list of customers eager to explore how AI can transform them, including NASA and NEC.

Demand from those customers for its computer solutions is so strong that on Jan. 19, Supermirco raised its fiscal second-quarter earnings and sales forecasts, surprising many.

Stock soars on AI-driven demand

The company cited a strong market and end customer demand for its rack-scale, AI, and Total IT Solutions as reasons for the revised forecast.

And now the numbers:

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Supermicro, which is slated to report earnings on Jan. 30, said that it expects revenue to range from $3.6 billion to $3.65 billion, up from an earlier forecast of $2.7 billion to $2.9 billion and well ahead of the consensus total of $2.84 billion.

Adjusted quarterly earnings are projected to range from $5.40 to $5.55 per share, a step up from the previous call for $4.40 to $4.88 and a nice, healthy jump from Wall Street's $4.55 per share target.

To put those numbers in perspective, revenue and earnings per share were just $1.8 billion and $3.26 per share one year ago.

The stock market reacted happily to the news, to put it mildly. Supermicro's shares skyrocketed on Jan. 19, soaring 35% to $421 at last check.

Several analysts responded by boosting their price targets for the company, including Barclays, which raised its price target from $335 to $396 per share.

The optimism is largely because of a rising need for its liquid cooling solutions from data centers processing more generative AI applications. Supermicro said in a white paper that many data center cooling solutions are required to maintain the optimal operating conditions for today's data centers' smooth and efficient operation.

"As AI and big data rise require massive amounts of data processing, heat is a byproduct of the high processing power," the paper said, noting that switching from air conditioners to liquid cooling technology saves energy, while additional power is saved by reducing system fan operation. That's proving to be a boon to its server sales.

Working on 'green computing mission'

"We speculate that the company's upside is importantly driven by earlier-than-expected hyperscale engagements, that are keen on deploying quickly liquid cooled racks that uniquely falls into Supermicro's area of expertise," Rosenblatt Securities analyst Hans Mosesmann wrote in a note, according to Reuters.

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Supermicro's stock surge followed the previous day’s tech rally when Taiwan Semiconductor,  (TSM) - Get Free Report the world's biggest contract chipmaker and a lead supplier for Apple  (AAPL) - Get Free Report iPhones, said 2024 sales would likely rise around 20% after it posted better-than-expected fourth-quarter profit. 

One big reason for Taiwan Semi's optimism is AI-chip sales growth. Its forecast sent shares of chipmakers Nvidia  (NVDA) - Get Free Report and Advanced Micro Devices  (AMD) - Get Free Report soaring. 

In May, Supermicro launched liquid-cooled Nvidia's HGX H100 rack scale solutions to help data centers reduce power. That's key because training and operating AI apps require significant and expensive energy.

In November, Liang stressed the importance of the company's "green computing mission" during Supermicro's earnings call.

"I believe this ongoing AI revolution will impact all industries and the world, possibly much more impactful than the Industrial Revolution over 200 years ago," he said, according to a transcript of the call. "As most people know, the power consumption and thermal challenges of these new AI technologies have risen dramatically."

Liang added that Supermicro's "high power efficiency systems, free-air and liquid-cooling expertise have become one of our key differentiators of success."

"I anticipate that up to 20% or more of global data centers will transition to liquid-cooled solutions in just a few years." he said. "In addition, the combination of increasing computing density, reducing (total cost of ownership), and liquid-cooling reduces the environmental impact of data centers significantly." That's critical in an era of significant AI research and development.