Meet the new stock split that outperformed Nvidia in the first half and Wall Street thinks it could almost double
Nvidia Nvidia’s lead has been hard to follow in recent years. The artificial intelligence (AI) chip giant has delivered triple-digit profit increases quarter after quarter, and its stock price has followed suit. Nvidia stock has soared more than 2,400% over the past five years, and given the company’s focus on innovation, this stellar performance may continue.
While Nvidia has captured most of the attention from investors of late, another tech company has outperformed the AI powerhouse in the first half of the year. And this company followed in Nvidia’s footsteps recently by announcing a stock split, a move to lower the price of its soaring stock and make the shares more accessible to a broader range of investors.
Now, Wall Street predicts that this player's gains may be far from over. Let's get to know the new split stock that analysts believe could nearly double in value over the next 12 months…
A triple-digit gain in the first half
And this action is Supermicrocomputer (NASDAQ: SMCI)a company that saw its share price rise 188% in the first half, outpacing Nvidia’s 149% gain. While individual forecasts vary, the average Wall Street estimate sees the stock up 90% from its current level.
It is important to note that this once highly successful species has been going through difficult waters in recent weeks. A brief report published by Hindenburg Research, alleging problems in the companyhas weighed on the stock. In an unrelated decision, Supermicro delayed the filing of its annual 10-K report, providing an additional hurdle.
I consider these to be short-term pressures, but they don't change the long-term story for Supermicro. And given the 20% drop in the stock since the brief, it looks very cheap right now – it's trading at just 13 times its value. Future earnings estimatesa reduction compared to the more than 45 times recorded at the beginning of the year.
In recent days, some analysts have highlighted Supermicro's potential. For example, Needham rated Supermicro as a buy option in the new coverage of the stock, and Needham expects a 37% gain in the coming months.
Why should we be so optimistic about Supermicro? First, the company has proven its ability to dominate the area of full-rack-scale solutions for data centers. Supermicro’s servers and other products share many common parts, so the company can more quickly manufacture a specific item to fit a customer’s needs. The equipment maker also works closely with all major chipmakers, including Nvidia, so it can immediately include their innovations in its products. This has helped revenue in a single quarter exceed annual revenue in 2021 alone.
Supermicro's big opportunity
Second, Supermicro now faces a significant opportunity that could usher in a new wave of lasting growth for the company. One of the biggest issues facing data centers today and tomorrow is the fact that AI workloads produce excessive heat. Once a slow-growing business, Supermicro’s direct liquid cooling (DLC) technology now promises to deliver explosive growth.
The company expects that within the next 12 months, 25-30% of data centers will be equipped with DLC and Supermicro will dominate this market. At the same time, Supermicro is preparing for the demand for DLC and its equipment in general as it launches its Malaysia facility, which will focus on volume and speed.
Given the AI market is expected to reach $1 trillion by the end of the decade and the key role data centers play in all of this, Supermicro's revenue could continue to grow for quite some time.
As for the stock split, Supermicro will trade at its new split-adjusted price starting October 1. This will not change anything fundamental about the company or the stock – the valuation and market value remain the same. Therefore, it will not act as a catalyst for the stock’s performance, but it is a positive move as it will make it easier for more investors to buy the stock over time.
All of this represents a lot of positive points for Supermicro, setting the stage for significant growth potential and making it a fantastic stock to buy on dips.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in Nvidia and recommends it. The Motley Fool has a Disclosure Policy.
Meet the new stock split that outperformed Nvidia in the first half and Wall Street thinks it could almost double Originally published by The Motley Fool
