To be included in the S&P 500, a company must meet certain criteria:
Be based in the U.S.
Have a market cap of at least $8.2 billion
A minimum of 50% of its outstanding shares must be available for trading
Must be profitable under generally accepted accounting principles in its most recent quarter
In aggregate, must be profitable over the preceding four quarters
Super Micro Computer (NASDAQ: SMCI), also known as Supermicro, is one of the most recent additions to the S&P 500, joining the fold in March and one of only eight companies added to the index so far this year.
Furthermore, the AI-centric server maker recently announced a 10-for-1 forward stock split, generally the province of companies with years of strong operating and financial results. Since the beginning of 2023, Supermicro shares have surged 500% as the rapid adoption of generative AI supercharged its sales and bolstered its profits.
Despite its blistering gains, many on Wall Street believe there's more upside ahead. Let's look at what sets Supermicro apart and whether it's a buy.
Catapulted to stardom
Supermicro has been creating custom server solutions for about three decades, but this experience had customers clamoring for its services when generative AI burst on the scene early last year. The company offers a variety of servers and storage systems, from plug-and-play rack scale systems to modular building block components.
The company also provides support services to help customers "install, upgrade, and maintain their computing infrastructure," according to a regulatory filing.
Management also cites strong partnerships with all the biggest chipmakers as a competitive advantage, keeping Supermicro supplied with all the latest and greatest processors. Furthermore, the company's focus on energy efficiency has become a hot ticket during the AI boom.
The past year has been transformational for Supermicro. During fiscal 2024 (ended June 30), revenue of $14.9 billion soared 109% year over year, while its earnings per share (EPS) of $20.09 jumped 76%. Management notes that sales have increased five times faster than the industry average during the past 12 months, which shows that the company is gaining market share from its rivals.
That said, this unprecedented growth spurt hasn't been without challenges. In the most recent quarter, the company experienced significant pressure on its margins, which it attributed to a change in product mix and a shortage of certain server components, which pushed $800 million in sales into the next quarter.