Stock splits are relatively common among companies related to artificial intelligence (AI). That’s because they’ve performed so well over the past year and a half that their stock prices have reached a level where a split is a good idea.

One company that recently joined this club is Super-microcomputer (SMCI 1.39%)commonly known as Supermicro. The company announced a 1:10 stock split on October 1, which will increase the stock price from around $630 to $63 per share.

While the stock split is exciting news, I think there’s an even better reason to buy the shares now before the split happens.

Data center products are in high demand

While NVIDIA Although it’s making headlines because it’s associated with the expansion of AI infrastructure, many other companies are benefiting from this tailwind. Supermicro is one of those companies, as its products, which range from data center hardware to complete racks, are in high demand.

Although many companies offer similar products to Supermicro, they stand out from the competition for two reasons. First, Supermicro’s servers are highly configurable and can be adapted to workloads of any size. Second, Supermicro’s servers are more energy efficient than its competitors, which is an important consideration since energy costs are significant over the lifetime of the server.

Thanks to these advantages, Supermicro’s sales have exploded over the past year, and further growth is expected.

SMCI Sales Data (Quarterly) by YCharts

Looking ahead to the first quarter of fiscal 2025 (ending September 30), management expects revenue of $6 billion to $7 billion, representing year-over-year growth of 183 to 230 percent. For fiscal 2025, the company expects revenue of $26 billion to $30 billion, representing year-over-year growth of 74 to 101 percent.

This is significant progress and a key reason to invest in the stock now. At the end of fiscal 2023, Supermicro had a long-term annual revenue target of $20 billion. And at the end of the second quarter of fiscal 2023, that target was only $10 billion.

This market is obviously growing rapidly and demand for Supermicro products is growing with it. However, this target was raised again in the latest results to the staggering figure of $50 billion in annual revenue. This is a huge increase from current projections and, in my opinion, a phenomenal reason to own the stock as Supermicro has consistently met its long-term goals.

However, after the company announced its fourth-quarter 2024 results, the stock plunged 20%. That seems like a strange reaction, but that’s because another key metric showed some weakness.

The share is valued relatively cheaply compared to competitors

While revenue growth is important and makes headlines, investors also need to see rising profits. Supermicro’s margins collapsed in the fourth quarter due to new product launches, and this weakness is expected to continue for most of fiscal 2025. However, this decline is short-sighted thinking because if Supermicro rebuilds its margins by the end of fiscal 2025, it represents a tremendous value opportunity.

SMCI P/E (Forward) data from YCharts

Currently, the stock is trading at 18.4 times forward earnings, which is quite cheap compared to most stocks on the market. It also suggests earnings growth of 72% next year.

Supermicro’s management has already forecast revenue growth of 74%, but the forecast is low. For the current valuation to make sense, earnings would have to remain at this low level throughout the year.

This discrepancy presents an excellent buying opportunity for the stock, and a patient investor could earn a satisfactory return on their investment if Supermicro’s margins recover over the next year.