Super-microcomputer (SMCI -0.23%) has been one of the hottest stocks on the market this year, posting huge gains of 73% at the time of this writing, but a closer look at the stock’s recent performance tells us that its bull run has come to an end. In fact, shares of Supermicro (as the company is called) have fallen 58% since hitting a 52-week high on March 8.

However, the company, which makes server and storage solutions, is experiencing phenomenal growth thanks to the booming demand for artificial intelligence (AI) servers, and this industry remains in demand. Let’s take a closer look at Supermicro’s prospects and see if the recent share price drop represents a buying opportunity.

The recent price decline does not seem justified

Supermicro released its fourth-quarter fiscal 2024 results for the three months ended June 30 on August 6. The company’s revenue rose an impressive 110% this year to around $15 billion. Adjusted earnings also nearly doubled from $11.81 per share in fiscal 2023 to $22.09 per share. Considering the stock’s attractive valuation, it looks like investors would do well to buy it right now.

Supermicro has a price-to-sales (P/S) ratio of just 2. That’s a huge discount to the U.S. tech sector’s multiple of 7.8. At the same time, Supermicro’s forward earnings multiple of just 14 is also much cheaper than the U.S. tech sector’s earnings multiple of 45. We’ve already seen how quickly Supermicro has grown, and the recent decline has given investors a solid entry point into this stock that could sustain its stellar growth for a long time to come.

Investors should keep an eye on the bigger picture

A revenue estimate of $26 billion to $30 billion for fiscal 2025 suggests that the company could double its revenue again this year. The good news is that Supermicro is sitting on a huge long-term growth opportunity in AI servers. According to one estimate, the size of the global AI server market could grow at a compound annual growth rate (CAGR) of 30% over the next decade, reaching annual revenue of $430 billion by the end of the forecast period. That would be growth of more than 10 times the $40 billion in revenue that the AI ​​server market is expected to generate in 2024.

Supermicro is one of the best ways to capitalize on this huge growth opportunity, as the company’s share of the AI ​​server market is expected to continue to grow in the future. According to Bank of AmericaSupermicro controlled 10% of the AI ​​server market last year. Its market share is forecast to grow to 17% by 2026, and that should come as no surprise as the company aggressively seeks to increase its manufacturing capacity.

Management has consistently taken steps to ensure that Supermicro can produce more server racks each month so that the company can continue to grow at a rapid pace. In June, for example, the company announced the opening of three new production facilities to meet the growing demand for liquid-cooled servers, which are becoming increasingly popular thanks to the introduction of artificial intelligence.

Not surprisingly, analysts are forecasting a 62% annual increase in earnings for Supermicro over the next five years. Applying that growth rate to the company’s fiscal 2024 earnings of $22.09 per share would translate into earnings of $246 per share after five years. Multiplying the projected earnings by the Nasdaq-100’s average earnings multiple of 32 would put Supermicro stock at more than $7,800 per share after five years.

Investors should note, however, that Supermicro has announced a 10-for-1 stock split that will take effect on October 1. However, a stock split is merely a cosmetic move that increases the number of shares issued by a company to lower the price of each share, so it will not change Supermicro’s fundamentals and prospects.

If the market starts to properly reward Supermicro stock for the outstanding growth it has delivered – and could continue to deliver over the long term – it could make investors significantly richer. That’s why investors would do well to add this growth stock to their portfolio while it’s still cheap.