We recently published a list of 12 High Growth Large Cap Stocks to Buy Now. In this article, we are going to take a look at where Super Micro Computer, Inc. (NASDAQ:SMCI) stands against other high growth large cap stocks.
BlackRock highlighted that its portfolio managers are broadly optimistic about US equities. Its portfolio managers opine that there is still some expected upside potential, despite the steep US stock valuations. However, the contrast between lagging European economic growth, and stock performance, is stark. The US Fed decided to reduce the policy rate by another 25 bps in a recent meeting as the apex bank sees inflation moving closer to its target of 2%.
However, the financial conditions remain loose after a historically sharp tightening cycle. The firm believes that such an unusual backdrop strengthens its view that the environment is being dominated by structural forces and not by a typical business cycle.
Overall, the firm remains overweight on the US given the positive view on the AI theme. The valuations for AI beneficiaries have strong backing as technology companies continue to beat high earnings projections. The asset manager believes that falling inflation continues to ease pressure on corporate profit margins.
High-Single Digit Growth in S&P 500
Goldman Sachs Research’s projections for the S&P 500 Index of stocks remain broadly the same as it was before Trump’s win. As per David Kostin, the chief US equity strategist at the firm, the S&P 500 is expected to reach 6,300 in the upcoming 12 months. The researchers expect growth in EPS of 11% in 2025 and 7% in the following year. That being said, David Kostin highlighted that the estimates might change as and when the new administration’s policy agenda gets revealed. Overall, strong earnings growth is expected to fuel continued equity market appreciation into next year.
Historically, the S&P 500 index generated a median return of 4% between election day in November and calendar year-end, as per Goldman Sachs. Together with the resilience in broader economic growth data and the expectation for further rate cuts, the near-term outlook for US equities remains healthy, as per Kostin.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
US Tariffs’ Impact
Several investors remain focused on trade policy, and Mr. Trump might have plans to implement some of the tariffs without legislation. Goldman Sachs believes that Trump will impose tariffs on imports from China. These are expected to average an additional 20 percentage points. Furthermore, European companies can face tariffs. The large investment bank also highlighted that, during Trump’s previous administration, domestic-facing and defensive industries, including utilities, telecom services, and real estate, outperformed. On the other hand, the stocks of automobiles, capital goods, and technology hardware underperformed.
The company believes that M&As might increase under Trump’s presidency. Though the policy uncertainty will take time to recede, there are expectations that antitrust regulation will be more relaxed. Moreover, the continued economic expansion and higher confidence among CEOs might result in increased corporate combinations. Approximately, $4 trillion of corporate spending in the next calendar year might roughly get evenly split between returning cash to shareholders and growth investments (such as CapEx, R&D, and M&A).
Stocks
Our Methodology
To list the 12 High Growth Large Cap Stocks to Buy Now, we sifted through several online rankings and a screener. We extracted the stocks that have a healthy 5-year revenue growth and a market cap of more than $10 billion. Finally, the stocks were ranked in ascending order of upside potential, as of 12th November.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Super Micro Computer, Inc. (NASDAQ:SMCI)
5-Year Revenue Growth: ~33.6%
Average Upside Potential: ~20.8%
Market cap as of 12 November: $12.3 billion
Super Micro Computer, Inc. (NASDAQ:SMCI) develops and manufactures high-performance server and storage solutions based on modular and open architecture in the US and internationally.
Super Micro Computer, Inc. (NASDAQ:SMCI) placed itself as a key provider of AI infrastructure, which should support its topline growth as a result of healthy demand for advanced computing solutions. The company’s product portfolio consists of a range of servers, storage systems, and networking equipment, with a strong focus on innovative cooling technologies in a bid to support the increasing power requirements of AI workloads.
A key differentiator for Super Micro Computer, Inc. (NASDAQ:SMCI) is its strong focus on liquid cooling solutions, mainly Direct Liquid Cooling (DLC) racks. Analysts believe that this strategy aligns with the higher power density requirements of next-generation AI systems. The company’s rapid time-to-market capabilities for rack-scale DLC production should act as a competitive advantage. This ability to bring innovative cooling solutions to the market should result in increased Average Selling Prices (ASPs) and fuel revenue growth as demand for advanced AI infrastructure increases.
Super Micro Computer, Inc. (NASDAQ:SMCI) has been expanding manufacturing with a new campus in Malaysia along with increased capacity in Silicon Valley. Its strategic investments and healthy relationships with critical partners such as NVIDIA place it well for future growth.
Needham & Company LLC initiated coverage on the shares of Super Micro Computer, Inc. (NASDAQ:SMCI) on 18th September 2024. The company issued a “Buy” rating with a price target of $60.00. Columbia Acorn Fund, distributed by Columbia Management Investment Distributors, released its Q3 2024 investor letter. Here is what the fund said:
“Super Micro Computer, Inc. (NASDAQ:SMCI) had a tough quarter due to a confluence of negative events. It declined, but is still up significantly for the year. While demand for the company’s AI server racks remains strong, with revenue up over 100%, gross margins have fallen sharply for two straight quarters, implying a price war. In addition, Super Micro was the subject of a short-seller report and a delay in filing its annual report with the SEC. We have been taking profits in the stock all year and have only a small position, which we are maintaining given the strong performance and demand for Super Micro’s AI racks and a depressed stock valuation.”
Overall, SMCI ranks 12th on our list of 12 High Growth Large Cap Stocks to Buy Now. While we acknowledge the potential of SMCI as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued 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.