We recently compiled a list of the 7 Best Computer Hardware Stocks to Buy. In this article, we are going to take a look at Super Micro Computer, Inc. (NASDAQ:SMCI) against the other computer hardware stocks.
According to a report by Research and Markets, the computer hardware market is projected to grow from $674.44 billion in 2023 to $710.32 billion in 2024, with a 5.3% compound annual growth rate (CAGR), mainly driven by personal computing, global supply chains, internet expansion, and more data centers.
By 2028, the market is expected to reach $914.55 billion at a 6.5% CAGR, fueled by trends like remote work infrastructure, sustainable practices, smart city development, and digital transformation. Key trends include edge computing, AI integration, modular systems, biometric security, and hybrid cloud environments, with significant investments in smart city projects, particularly in China.
The most important trends in the advancement of computer hardware are AI and machine learning which are revolutionizing hardware design and enabling applications like autonomous vehicles and robotics. Apart from that, the Internet of Things (IoT) is expanding, connecting more devices in smart homes, cities, and industries. It has led to a focus on improving security, efficiency, and the ability of different IoT devices, systems, and technologies to work together seamlessly.
Role of AI in the Growth of the Computer Hardware Industry
On May 28, Michael Fertik, founder of Heroic Ventures, joined CNBC’s ‘Squawk Box’ and said that we’re still in a phase of AI development where hardware is crucial. Companies like NVIDIA are thriving because their products are essential for running large AI models, which require immense computational power. He said that this situation is similar to how search engines, like Google or Bing, have long relied on substantial investments in hardware to function effectively.
Fertik added that as AI technology evolves, there will be a shift. The costs associated with AI hardware will decrease, and smaller, more specialized AI models will emerge, which will be tailored for specific industries or purposes.
When this happens, the focus and financial gains will also move toward software and computer science (software testing and development) companies. However, they will not significantly move from computer hardware companies and they will still benefit from the growing AI industry.
Industry Has Room for Growth Beyond AI
A major growth prospect for computer hardware is quantum computing, an industry that is expected to reach $11.4 billion by 2027 from $2.74 billion in 2022, according to Research and Markets. Quantum Computing offers significant benefits by improving the speed and efficiency of complex computations.
Unlike classical computers, which process bits as 0s or 1s, quantum computers use qubits that can represent multiple states at once, which enables them to solve problems much faster. This is especially valuable in fields like cryptography, drug discovery, financial modeling, and optimization as it solves complex simulations and calculations that are currently infeasible for classical computers.
Quantum Computing can significantly benefit the computer hardware industry by driving advancements in technology and creating new markets. Similar to AI, the development of quantum hardware requires innovations in materials science, cooling systems, and chip design, which can push the boundaries of traditional hardware engineering.
As quantum computers become more practical, they will require specialized hardware components, which will create new opportunities for companies to develop and supply these advanced technologies. For more details, you can read our article about the 12 Best Quantum Computing Stocks To Invest In.
Our Methodology
For this article, we used stock screeners and other financial media websites to identify 12 computer hardware companies with market capitalizations of above $1 billion. The analyst comments and ratings were mostly taken from The Fly and TipRanks.
A team of technicians in a server room, testing and managing the newest server solutions.
Super Micro Computer, Inc. (NASDAQ:SMCI)
Stock Price as of August 9: $508.76
Average Analyst Price Target Upside as of August 9: 36.21%
Super Micro Computer, Inc. (NASDAQ:SMCI) is a California-based tech company that focuses on the design, manufacture, and marketing of advanced server and storage systems that are essential for contemporary IT infrastructure. The company’s product range includes high-performance servers, modular blade servers, and specialized storage solutions, made for the needs of diverse markets such as data centers, cloud computing, AI, and edge computing. The company offers a variety of products, including complete server systems, server management software, networking equipment, and essential server components such as motherboards and power supplies.
Among its prominent products is the SuperServer series, which features models like the SuperServer 6029TP-HTR, built for demanding computational tasks. Super Micro (NASDAQ:SMCI) also offers Blade Servers with modular designs that optimize space usage in data centers. Additionally, the company’s Rack Solutions provides flexible configurations designed to meet the needs of enterprise environments.
As per the coverage of 19 analysts, Super Micro (NASDAQ:SMCI) has an average price target of $693.00, which represents an upside of 36.21% from the current levels, as of August 9. It takes the fourth spot on our list of the best computer hardware stocks to buy now.
Super Micro (NASDAQ:SMCI) has been experiencing remarkable growth, largely fueled by the rising need for AI servers. In its Q4 earnings report, which covers the period ending June 30, the company showcased an impressive 110% increase in revenue, reaching approximately $15 billion. This surge reflects the strong demand for its products, with adjusted earnings per share nearly doubling from $11.81 in fiscal 2023 to $22.09.
Despite facing some short-term challenges, particularly with lower-than-expected gross margins, Super Micro’s (NASDAQ:SMCI) long-term outlook remains positive. On August 7, an analyst from JPMorgan maintained an Overweight rating on the stock with a $950 price target. They acknowledged the initial concerns about margin softness but highlighted that these are temporary.
They anticipate that as the company overcomes current manufacturing inefficiencies and adjusts strategic pricing, margins will improve. This optimism is further supported by the firm’s projection of enhanced gross margins in the coming quarters, along with limited impact from delays in NVIDIA Corporation’s (NASDAQ:NVDA) Blackwell solutions.
The company is also well-positioned to benefit from emerging trends in data center technology. Super Micro (NASDAQ:SMCI) has made significant strides in the direct liquid cooling (DLC) market, which is gaining traction due to the increasing power demands of AI servers. The company introduced its new liquid-cooled solutions at Computex in early June, and since then, demand has exceeded expectations.
As per CEO Charles Liang, the company has already shipped around 1,000 liquid-cooled racks in just a couple of months, which represents more than 15% of new global data center deployments during that period. Moreover, the company forecasts that 25% to 30% of new data center setups will adopt DLC solutions within the next year.
The Brown Capital Management Small Company Fund stated the following regarding Super Micro Computer, Inc. (NASDAQ:SMCI) in its first quarter 2024 investor letter:
“We are benchmark-agnostic, so we spend our time researching current or potential EGCs, not analyzing indexes. However, this quarter there was inescapable attention on one AI-related company, Super Micro Computer, Inc. (NASDAQ:SMCI), which makes servers that hold Nvidia’s (NVDA) graphics processing units. Pundits wondered if Super Micro was the next AI “meme stock” set to soar like Nvidia. Super Micro’s stock price was up 255% in the first quarter and indeed is up a jaw-dropping 848% in the last year. Importantly, Super Micro is in the Russell 2000® Growth index, and alone accounted for over a third, or 2.82%, of the index’s 7.58% total return this quarter. However, Super Micro is not a company we could have ever owned. The company generated more than $7 billion in revenue in its last fiscal year, far above our current maximum revenue threshold. In fact, when the company came public in March 2007, it was already too large for our portfolio. Now, the company is so large that it moved into the S&P 500 index at the end of the first quarter. Nevertheless, not owning Super Micro was the largest detractor to our performance versus the index this quarter, comprising more than one-third of our underperformance. This, to us, is a reminder why an index is not always an accurate gauge of our short-term performance.”
Overall SMCI ranks 4th on our list of the best computer hardware stocks. While we acknowledge the potential of SMCI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SMCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
