Super-microcomputer (NASDAQ:SMCI) has been building server systems for 30 years. Some of the world’s most powerful supercomputers come out of Supermicro’s factories, and the company is a leading manufacturer of highly efficient systems for training and running advanced artificial intelligence (AI) services.

The AI ​​boom has been very beneficial for Supermicro and its investors. The stock has gained 779% in two years, outperforming even the AI ​​chip giant. NVIDIA (NASDAQ: NVDA)Can this soaring stock price go even higher or is it already too late to invest in Supermicro?

Supermicro in numbers

The stock is soaring for good reason. Supermicro’s revenue has increased 144% in two years, starting just before the launch of OpenAI’s revolutionary ChatGPT service. Adjusted profits have increased 148% in the same period:

Thanks to its improving financials, Supermicro stock still looks quite affordable. Shares trade at 31 times trailing earnings and 2.4 times sales—not exactly a bargain, but those valuation ratios are well below Nvidia’s.

In addition, Supermicro’s management expects its rapid revenue growth to continue in the recently started fiscal year 2025. Revenue should increase by about 88% this year. While that’s less than the 110% in fiscal year 2024, which ended June 30, it’s still an impressive growth forecast for a company with annual revenue of $14.9 billion. Behind this uptrend are customers who value Supermicro’s modular system designs and highly efficient liquid cooling systems. The company is becoming the preferred solution for IT shops looking for high-performance computing solutions with low power consumption and efficient cooling.

Supermicro’s reinvestment strategy

Supermicro is not resting on its laurels in AI. The company is investing its recent profits in future-oriented growth engines. Operating expenses increased 38% year over year in the fourth quarter as Supermicro hired and trained more engineers. Capital expenditures quadrupled due to extensive upgrades to Supermicro’s manufacturing facilities.

The pioneering infrastructure improvements are bringing with them some unpleasant short-term effects. Supermicro’s warehouses are crammed with $4.4 billion worth of inventories, up from $1.4 billion last year. Combined with high operating costs and capital expenditures, free cash flows are currently heavily negative:

That’s enough to keep some investors away from Supermicro stock. However, the company has $1.7 billion in cash reserves to provide a stable cash cushion while maintaining a financial laser focus on the AI-driven market opportunity. Golden ages like this don’t come around too often, and it would be a shame to miss out on the next few years’ potential gains just because it’s expensive in the short term. I like companies that are willing to take on temporary costs to build a better long-term future.

The story continues

You haven’t missed the Supermicro train yet

Supermicro’s growth story is in full swing. The company is seeing massive revenue and profit gains today, and management has decided to invest this windfall to take full advantage of this rare opportunity. The stock is rising rapidly, but is still relatively affordable, and that’s another unusual combination.

No one would have expected this kind of boom from a relatively sleepy system builder, but Supermicro is taking full advantage of this golden age. If you want to bet directly on hardware vendors in the AI ​​space, Supermicro stock offers a cheaper entry point than Nvidia’s horrendous valuation multiples. Supermicro isn’t my favorite AI investment right now, but it’s hard to find a better idea on the hardware side of this boom.

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Is It Too Late to Buy Supermicro Stock? was originally published by The Motley Fool