How to Invest in Super Micro Computer

Super Micro Computer (SMCI -5.25%) stock has taken the market by storm during the artificial intelligence (AI) era. The company, which is also known as Supermicro, was little known around a year ago. Since then the stock has exploded on a surge in demand for its storage and server equipment.

Supermicro's high-density equipment is well suited to run the heavy workloads and meet the intense computing needs of AI models like ChatGPT.

Sales tripled in its most recent quarter as the company has emerged as one of the big winners of the AI boom.

If you're interested in buying shares of Super Micro Computer, you're not alone. The stock jumped more than 1,000% at one point during its bull run, making it closely watched among tech investors. Keep reading to see how you can invest in Super Micro Computer stock today.

How to buy

How to buy Super Micro Computer stock

Super Micro Computer has been a publicly traded company for a long time, and you can buy shares of the stock like any other publicly traded company's. Let's review the process step-by-step.

Step 1: Open a brokerage account

To buy Super Micro Computer stock, you'll need to have a brokerage account. If you don't already have one, you can open one for free with a brokerage. There are plenty of options out there, including Charles Schwab (SCHW 1.95%), Fidelity, Robinhood (HOOD -4.3%), and E-Trade. Each platform has a different interface and different strengths and weaknesses, so it's worth considering what you want from your brokerage, whether it's market research and data or an easy and convenient mobile app.

Step 2: Figure out your budget

Before you buy the stock, you'll want to decide how much to invest. First of all, it's a good idea to pay off your high-interest debt and save up for an emergency fund that can cover three to six months' worth of expenses. It's also a good idea to diversify your investment across multiple holdings. In general, you should limit stock purchases to 10% of your total portfolio value. Your choice of how much to invest in a particular stock will depend on your confidence in the investment.

Step 3: Do your research

Next, you'll want to do your research so you understand what you're investing in, its growth potential, and its risks. You should know what makes the stock an attractive investment and what would cause you to change your mind and sell? If you're planning to buy Supermicro stock, it's a good idea to write down your thesis on the stock so you understand why you own it. That way you can review your thesis later.

Step 4: Place an order

Finally, once you have a brokerage account, and you've funded it and done some research, you're ready to place your order.

However, you have to decide whether you are going to use a limit order or a market order. A limit order gives you more control over how much you pay, as you can set an upper limit, but your order might not be executed if that limit is too low. With a market order, on the other hand, your order is likely to get executed immediately at the market price.

Should I invest?

Should I invest in Super Micro Computer?

It's hard to overstate the dramatic surge Super Micro Computer stock has experienced during the AI boom. From the start of 2023 to May 16, 2024, Supermicro shares gained more than 1,000%, and they were up more than 1,300% at one point before pulling back.

Past price appreciation alone isn't a reason to buy a stock, but it is a reason to take a closer look, and Supermicro's recent growth helps explain why the stock has soared. Revenue tripled in its fiscal third quarter, as it's seeing skyrocketing demand for its servers.

The company faces increasing competition, as the server market is suddenly hot because of AI-related demand. Investors should pay attention to competitors like Dell (DELL -17.87%) and Hewlett-Packard Enterprise (HPE -4.7%) as the market evolves, though Super Micro Computer continues to innovate with new technologies like liquid cooling. The stock is also priced for continued growth, trading at a price-to-earnings ratio of 50, although that looks like a good price considering Supermicro's soaring growth.

Let's take a look at some other metrics about the company to determine if you should invest in it.

Is it profitable?

Is Super Micro Computer profitable?

Super Micro Computer is currently profitable. As a computing hardware business, the company operates with low gross margins since most of its revenue goes to pay for the cost of its product.

In the fiscal third quarter, gross margin came in at 15.5%, but its overhead costs were relatively minimal. The company kept almost two-thirds of its gross profit as operating profit in the quarter, finishing the period with $378.3 million, almost quadrupling the previous year's amount.

Super Micro Computer has been profitable for a long time, but it was a much smaller company before the recent AI surge. Whatever happens with artificial intelligence, investors should expect the company to continue to be profitable.

Does it pay a dividend?

Does Super Micro Computer pay a dividend?

Super Micro Computer does not currently pay a dividend and has never paid one. Tech companies typically don't when they are growing rapidly, and Supermicro is clearly in a rapid growth phase. Even tech giants like Meta Platforms (META -0.05%) and Alphabet (GOOG 0.23%)(GOOGL 0.23%) only started paying dividends this year.

According to the company's most recent annual report, it does not "expect to pay any cash dividends for the foreseeable future."

ETFs with exposure

ETFs with exposure to Super Micro Computer

Several ETFs hold Super Micro Computer stock. The AI server maker was recently added to the S&P 500, so any ETF that tracks the S&P 500 will hold shares of Supermicro.

If you're looking for increased exposure to Supermicro stock from an ETF, some options are the Global X Data Center REIT & Digital Infrastructure ETF (NYSEMKT:VPN), the YieldMax Ultra Option Income Strategy ETF (ULTY -0.55%), and the Pinnacle Focused Opportunities ETF (NYSEMKT:FCUS). In all three ETFs, Supermicro makes up at least 4% of the fund's value.

Will the stock split?

Will Super Micro Computer's stock split?

Super Micro Computer has never split its stock, but a stock split would certainly be reasonable with the stock price hovering around $1,000.

Management has not given any indication about a stock split, and typically companies don't hint at future splits, preferring to just announce one when a decision has been made.

Since Supermicro has never split its stock before, it's hard to know if it ever will. If the stock price continues to go up, however, demand for a stock split will likely increase.

The bottom line

The bottom line

Super Micro Computer stock has skyrocketed over the last year as demand for its high-density servers has soared. The servers are well equipped to run demanding AI applications like ChatGPT.

From here, the stock is likely to continue to be volatile, as the surge in share price means the company will need to deliver higher profits to back up its valuation and the stock surge. Competition from peers like Dell and HPE is coming, and the AI market is fast evolving.

Supermicro's current position is likely to change, but it's also asserted itself as a tech leader, and it should remain that way if it can innovate in areas like liquid cooling and stay ahead of the competition.

Keep your eye on its top-line growth since that is likely to dictate the stock's movements for the foreseeable future.