Super Stock: My #1 Pick For 2023

Invest Like Warren Buffet: Value and Growth

Warren Buffett is known for investing in good companies that offer discounted valuations and a competitive advantage in their industry. I also like focusing on the best of both worlds – value and growth. As showcased with our November 14th Alpha Pick, Seeking Alphas quant ratings made a great call with its pick of Super Micro Computer, Inc. (NASDAQ:SMCI), which recently announced its addition to the S&P Midcap 400 Index. Offering excellent investment characteristics on a sector-relative basis, SMCI’s Factor Grades below indicate its extraordinary potential for growth while still trading at a discount.

SMCI Factor Grades

With a current A Valuation grade, an ‘A’ Growth grade, and a ‘B’ Profitability grade, SMCI is one of the most profitable companies in its sector with growth prospects and continued momentum. Consider this “super” stock as an option for your portfolio in the New Year.

Super Micro Computer, Inc. (SMCI)

• Market Capitalization: $4.47B

• Quant Rating: Strong Buy

• Quant Sector Ranking (as of 1/9/22): 2 out of 660

• Quant Industry Ranking (as of 1/9/22): 2 out of 29

Super Micro Computer, Inc. (SMCI) and its subsidiaries are global tech leaders offering high-performance server and storage solutions. With meticulous designs and tremendous semiconductor manufacturing relationships (one of my favorite tech industries), SMCI offers diverse systems and solutions to meet customer demands. Not only is SMCI focused on digital transformation, but Supermicro is also making transformations at the infrastructure level. Additionally, SMCI is designing first-to-market optimized applications for customers while reducing costs and environmental impacts, like power consumption of servers, workstations, and storage systems, through its mission of “green computing.”

“As a leader in the industry, we want to provide exactly the best for our customers to help them save money and TCO. We also want to make sure we contribute to our environment, contribute to our only Mother Earth” –Charles Liang, Supermicro CEO & President.

Tech Solutions In A Digital World

FAANG stocks have become household names, along with many smaller tech darlings experiencing a rally throughout and post-pandemic. But in 2022, the tech highs became lows. If you include the crypto crash of $3T, the S&P 500’s $8 trillion loss, and the smaller U.S. stocks’ losses of ~$2T, last year experienced a $12T wipeout of wealth in a year. Big tech’s $5T contribution to the market cap loss includes the following six names:

• Amazon (AMZN): -$848B (-49% Y/Y)

• Alphabet (GOOGL): -$814B (-39% Y/Y)

• Apple (AAPL): -$817B (-27% Y/Y)

• Microsoft (MSFT): -$790B (-30% Y/Y)

• Meta (META): -$660B (-$66% Y/Y)

• Tesla (TSLA): -$700B (-65% Y/Y)

The six companies above comprise more than 40% of the Nasdaq 100 Index, which ended the year down ~30%, along with the Technology Select Sector SPDR ETF (XLK), as showcased in the below chart, Super Micro Computer was unphased, up more than 80% to ring in the new year.

How 2022 1-year Performance of Big Tech Compares to SMCI

Focus on machine learning, Ai, cloud computing, and IoT, SMCI stays ahead of the competition in terms of technology. Specializing in artificial intelligence, cloud servers, IoT, and 5G Telco infrastructures, its transformative Total IT services are customized around its clients. Headquartered in San Jose, California, SMCI generates most of its revenue in the U.S. (70%), with the bulk of the remaining revenue mix in Europe and Asia.

SMCI Revenue

SMCI’s focus on streamlining solutions has resulted in shorter lead times and greater efficiency, quality, and performance. SMCI’s plug-and-play module is driving results for clients and the company, as showcased in the latest earnings report.

Super Micro Growth & Profitability

Supermicro delivered tremendous earnings results following record revenue for its first quarter FY23. Beating analyst expectations, sales surged 79% year-over-year, as EPS of $3.42 beat by $0.60 and revenue of $1.85B beat by $129.67M. Super Micro’s CFO, David Weigand, said:

“As we look ahead to the rest of fiscal 2023, we expect that our improved profitability together with good working capital management will lead to operating cash flow in line with net income. We remain confident in our long-term outlook for robust revenue growth and profitability driven by our leading-edge new platforms, design wins, market share gains, and engagement with significant new global customers.”

Some industry tailwinds pushing SMCI positively into 2023 include capitalizing on robust client strength in the Original Equipment Manufacturer (OEM)/Appliance and Large Data Center segment. To meet the high demand in the server and storage space for Technology Hardware, SMCI has increased its product portfolio by 25%. While other tech companies are facing headwinds coming into 2023, Super Micro Computer is experiencing growth, as evidenced by the company’s collective metrics and solid ‘A’ Growth grades below.

SMCI Has Excellent Top and Bottom Line Growth

Despite supply chain constraints that have hurt other industries, SMCI has outperformed, maintains a strong balance sheet, and has a growth rate that is ten times higher than the overall IT sector.

As a quant-rated Strong Buy stock, Super Micro Computer Inc. has bullish recommendations from two Wall Street analysts and positive ratings from Seeking Alpha contributors, supported by the company’s outlook.

“Looking ahead, I anticipate fiscal year 2024 revenue may reach the range of $8 billion to $10 billion considering the current economic headwind may last for many quarters. As we continue to gain IT market share with the best rack-scale Plug-and-Play IT Total Solutions, I believe we will soon become a $20 billion revenue company. Our business model has been optimized, our engineering teams are fully ready, and our worldwide campus production capacity and efficiency are now second to none.” –Liang

SMCI has been focused on cost-cutting where possible while offering new products and service solutions that include plug-and-play Rack-Scale Total IT solutions and GPU-based systems. Both actions have resulted in year-over-year triple-digit percentage growth, and the company anticipates continued momentum throughout 2023.

As one of the biggest global suppliers of IT solutions, SMCI wants to offer peace of mind to customers. By creating optimized products from its system-level rack scale, data center management software, and remote capabilities, SMCI’s business model is superior to its competitors. In addition to helping customers save time and money while being more efficient, Super Micro is focused on saving the planet through Green Computing which is focused on lowering carbon emissions from power generation. With plans to become a $20B revenue company soon, although the stock is +80% over the last year, the company still comes at a tremendous value.

SMCI Valuation

SMCI continues to outperform the S&P 500 and Nasdaq. Possessing one of the best valuation frameworks compared to any stock in the IT sector, its A Valuation grade showcases a forward P/E ratio of 8.83x, a more than 62% difference to the sector, and a forward PEG of 0.28x, a -81.89% difference to its peers.

In addition to these metrics, you can see that SMCI comes at an extreme discount, undervalued on several metrics, and its excellent financials and growth prospects indicate potential upside in the new year.

Despite trading near its 52-week high, SMCI is on a longer-term uptrend. With a rising 10-day moving average, investors are paying higher prices for shares as the stock is in demand, as showcased by its stellar Momentum Grades.

Although geopolitical factors affecting supply chain constraints and inflation affecting potential recession may pose challenges, Super Micro is a unique trailblazing company that continues to win when other tech companies – and indexes – are losing. While past performance is no guarantee of future results, as the technology industry begins to stabilize and recession fears potentially dissipate in the near future, SMCI may be primed as a Top Stock for 2023.

Consider SMCI as a top New Year’s resolution for 2023

Super Micro Computer Inc. is a Top Technology Stock to consider for a portfolio. As a flourishing global tech company doing its part to offer green solutions, SMCI is being added to the S&P midcap 400 Index. With bullish momentum and eleven consecutive top-and-bottom-line earnings beats, SMCI offers unique product and service solutions to capitalize on long-term secular growth cycles within the IT space.

Producing record Q1 FY23 revenue results while capturing market share to scale and grow, SMCI’s artificial intelligence and cloud-based technologies are evolving how its clients work and play. With strong guidance, excellent fundamentals, and a stellar balance sheet, consider Super Micro Computer, a super company for your portfolio in 2023.