Super Micro Computer says it ships 100,000 GPUs per quarter. Time to buy the stock?

The artificial intelligence (AI) competition is in full swing and every company is racing to develop the best possible AI model and capture a potentially huge market. This is similar to events such as the California Gold Rush.

Not every gold seeker found gold and many lost everything in the search for it. However, one industry was booming during this time: hoes and shovels. This creates an investment strategy that looks for companies that sell advanced picks and shovels to companies that compete in a category like AI.

Super microcomputer (SMCI 2.07%) fits this description. The company recently announced that it shipped more than 100,000 graphics processing units (GPUs, the core hardware for AI computing) in a quarter. That’s an unreal amount, but is this a stock worth buying?

Supermicro’s technology sets it apart from the competition

Supermicro (as it is commonly known) offers parts and complete solutions for computer servers that can be customized to any size and tailored to specific workload types. This flexibility sets it apart from the competition, as does its liquid-cooled technology.

These servers consume a lot of power. This energy is converted into heat that must be dealt with; Otherwise, the server would overheat and ruin millions of dollars worth of GPUs.

The standard solution is to cool the room with an air conditioner, but this is costly. Instead, Supermicro uses liquid cooling technology, eliminating the need for those huge air conditioning units tailored specifically for server rooms.

Supermicro says its cooling technology saves 40% on energy costs and provides 80% space savings because no air circulation is required. As leading AI vendors expand their computing power, space requirements become increasingly limited, which is why Supermicro’s solution has risen to the top as a top-notch option, even though their products cost more than the competition.

With Supermicro’s racks filled with more than 100,000 GPUs per quarter, it’s clear that demand is high. But does that make the stock worth buying?

The stock is incredibly cheap, but it carries risks

While business appears to be booming, there are some other under-the-hood issues that need to be discussed.

In August, prominent short seller Hindenburg Research published a report on Supermicro alleging the company was involved in accounting errors, for which it was fined by the Securities and Exchange Commission over problems in 2018.

Although Supermicro denied these allegations, the company announced that it would delay filing its year-end Form 10-K report to evaluate the “effectiveness of internal controls over financial reporting.” That’s not a great look.

The Justice Department has also launched an investigation into the company’s accounting practices, but it will be some time before we know the results.

Since there are many unknowns about the company, you would be forgiven for not wanting to invest in the company. There are many good companies out there and it may not be worth taking a chance on Supermicro considering all the accounting controversies.

However, if it doesn’t bother you, the stock has real value.

SMCI P/E ratio (forward), data from YCharts; PE = price-earnings ratio.

Super Micro Computer is currently trading at a ridiculous price of 13.9 times forward earnings. Compared to S&P 500trading at 23.5 times forward earnings, is a massive discount to the broader market.

Management also expects growth to continue for some time, as it believes the company is on track to reach $50 billion in annual revenue. Fiscal 2025 (ending June 30, 2025) is expected to be $26 billion to $30 billion, representing significant growth from 2024’s $14.9 billion.

Whether Supermicro stock is a buy right now depends on your risk tolerance. If you’re okay with some risk, there are plenty of compelling reasons to buy the stock. But if not, there are still plenty of great companies with market-leading potential.