The significant growth in artificial intelligence applications is driving demand for the company’s application-optimized servers.
Super Micro Computer (SMCI 4.22%) shares rose 10.5% in after-hours trading on Monday after the computer server expert issued a super-strong report for the second quarter of fiscal 2024 (ending December 31, 2023).
The market’s favorable reaction was partly due to Supermicro (as the firm refers to itself and is generally known) providing third-quarter guidance that demolished Wall Street’s consensus sales and earnings projections, as well as dramatically boosting its full-year fiscal 2024 top line guidance. The significant growth was driven in large part by strong market demand for the company’s servers designed for artificial intelligence (AI) applications.
Supermicro’s strong second-quarter results were not surprising given that the company provided tentative sales and earnings ranges on January 18. These indicators outperformed Wall Street estimates, sending shares up 36% the next day. However, the quarter’s top and bottom lines both came in somewhat higher than the company’s earlier expectations, which likely helped the stock in Monday’s after-hours trading session.
Super Micro Computer’s key numbers
| METRIC | FISCAL Q2 2023 | FISCAL Q2 2024 | CHANGE |
| Revenue | $1.80 billion | $3.66 billion | 103% |
| GAAP operating income | $215 million | $371 million | 73% |
| GAAP net income | $176 million | $296 million | 68% |
| Adjusted net income | $187 million | %329 million | 76% |
| GAAP earnings per share (EPS) | $3.14 | $5.10 | 62% |
| Adjusted EPS | $3.26 | $5.59 | 71% |
In its preliminary statement on January 18, the business predicted quarterly sales of $3.6 billion to $3.65 billion and adjusted earnings per share of $5.40 to $5.55. These preliminary numbers, which the business exceeded, indicated a significant improvement from its previous projection, which called for sales of $2.7 billion to $2.9 billion and adjusted EPS of $4.40 to $4.88.
Wall Street had previously projected adjusted EPS of $4.93 on revenue of $3.06 billion. So, Supermicro outperformed both forecasts.
In the first half of fiscal 2024, Supermicro spent $325 million on operations, compared to $475 million in the previous year. Cash and cash equivalents totaled $726 million at the end of the quarter, with total bank debt of $376 million.
What the CEO has said
Here’s what CEO Charles Liang said in the earnings release
We continued to demonstrate our market leadership in fiscal Q2 2024, reporting record revenue results of $3.66B [and] year-over-year growth of 103%. While we continue to win new partners, our current end customers continue to demand more [of] Supermicro’s optimized AI computer platforms and rack-scale Total IT [information technology] Solutions. As our innovative solutions continue to gain market share, we are raising our fiscal year 2024 revenue outlook to $14.3 billion to $14.7 billion.
Guidance
For the fiscal third quarter (ending March 31), Supermicro guided for:
- Revenue of $3.7 billion to $4.1 billion, up 189% to 220% year on year.
- Adjusted earnings per share (EPS) ranged from $5.20 to $6.01, representing a 219% to 269% increase year over year.
Prior to the publication, Wall Street had projected Q3 revenue and adjusted EPS of $2.87 billion and $4.55, respectively, thus the company’s outlook demolished these expectations.
For the full fiscal year 2024 (ending June 30), management increased their guidance as follows: Revenue of $14.3 billion to $14.7 billion, up from a previous estimate of $10 billion to $11 billion. The revised projections indicate annual increase of 101% to 106%.
In short, Super Micro Computer had a wonderful quarter. The company has promising long-term growth potential, owing largely to the increasing adoption of AI by businesses and other entities of various sizes.
Supermicro stock should be on growth investors’ watch lists. However, investors should keep track of the company’s cash flows. While its reported “earnings” are favorable, it had negative operating cash flow in both the second quarter and the first half of fiscal 2024.