We recently compiled a list of the 8 Unstoppable Stocks That Could Make You Richer.In this article, we are going to take a look at where Super Micro Computer, Inc. (NASDAQ:SMCI) stands against the other unstoppable stocks.
Navigating Volatile Equity Markets
In the current climate of extreme market volatility, finding safe and stable investments is challenging. Valuations seem overstretched following one of the longest bull runs, with major indices reaching record highs. Despite this, the focus should remain on stocks of companies with strong fundamentals and solid long-term prospects.
Similarly, it's crucial to consider companies that can withstand uncertainties caused by various headwinds, such as rising geopolitical tensions, the US election, and the high interest rate environment. While the recent Federal Reserve rate cut, declining inflation rates, and a prolonged bull market have benefited investors, not all stocks are responding uniformly.
How Are Economic and Geopolitical Factors Influencing Investments?
As the US election approaches, economic issues remain the primary concern for most voters. Despite the equity market's upward trend, the US economy has experienced several shocks, including slowdowns in the labor and real estate markets. Although inflation has decreased from a high of 9.2% to 2.4%, the Federal Reserve had to cut interest rates by 50 basis points to prevent a recession.
"Even as the data shows inflation has theoretically been slowing down, it has become more important in people's minds over the course of the last three quarters, not less important," said Jay Campbell, partner at Hart Research, the Democratic pollster for the survey.
The significant drop in inflation has coincided with higher growth expectations, driving upward momentum in the equity markets. Strong macroeconomic data, such as impressive GDP and retail sales figures, have supported these growth expectations. Amid these expectations, bond yields have increased, indicating that investors are selling safe-haven assets. Economists at Goldman Sachs suggest that the rise in yields is due to promising growth prospects rather than factors like the anticipation of Donald Trump's potential presidency or concerns about the Fed's rate cuts causing inflation to spike again.
"Yields have risen significantly over the past several weeks, which we find has owed primarily to continued strong U.S. growth momentum rather than shifts in election odds," Goldman said in a recent note.
Conversely, escalating trade and tariff tensions between the US and China pose a threat to market sentiment. The International Monetary Fund has warned that these tensions could have costly economic consequences globally.
"We are seeing geopolitically driven trade around the world, which is why when you look at overall trade to GDP that's holding up fine, but who's trading with whom is certainly changing," said Gita Gopinath, deputy managing director of the International Monetary Fund, to CNBC on October 23, 2024.
In response to perceived unfair trade practices by Beijing, the US and EU have increased tariffs on certain Chinese goods, further escalating trade tensions this year.
Despite rising geopolitical tensions, long-term investing remains the best strategy for building a profitable portfolio and sustaining growth over time. Key factors to consider include investing in businesses rather than just share prices, understanding the underlying business, and consistently investing during both market highs and lows.
Our Methodology
For this article, we identified approximately 20 stocks with a year-to-date share price gain of over 30% as of October 25 and an average analyst price target upside of at least 30%. We then narrowed the list to the 8 stocks with the highest average analyst price target upsides, ranking them primarily by upside potential and secondarily by year-to-date gains.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of technicians in a server room, testing and managing the newest server solutions.
Average Analysts Upside Potential as of October 25: 33.40%
Year-to-date gains: 66.89%
Number of Hedge Fund Holders: 47
Super Micro Computer, Inc. (NASDAQ:SMCI) is an unstoppable stock that could make you richer as it is developing high-performance server and storage solutions that are in high demand amid the artificial intelligence race and digital revolution. It is turning out to be one of the biggest beneficiaries of the AI boom as it makes computers that companies use as servers for data storage.
At the start of 2024, Super Micro Computer, Inc. (NASDAQ:SMCI) held just 6% of the worldwide server market. Selling liquid-cooled, high-performance servers for demanding computing tasks has allowed it to carve out a niche for itself. Because of this, Nvidia found Supermicro to be a perfect partner and provided it with top-tier data center GPUs to aid in producing dedicated AI servers.
Though not exclusive, its strategic partnership with Nvidia has strengthened its competitive edge in the server market. Super Micro's revenue more than quadrupled from $3.6 billion in fiscal 2021 to $14.9 billion in fiscal 2024, coinciding with the generative AI market's explosive growth. Additionally, its earnings per share (EPS) increased by almost ten times. More than half of its revenue now comes from AI servers.
The confirmation that Super Micro Computer, Inc. (NASDAQ:SMCI) is shipping more than 100,000 graphics processing units used for artificial intelligence underlines the strong demand that could translate into billions of dollars in revenues. Like other cloud service providers, Super Micro claimed to have recently installed over 100,000 GPUs with liquid cooling for some of the largest AI factories ever built.
The soaring GPU orders are one of the reasons analysts remain bullish about Super Micro Computer, Inc. (NASDAQ:SMCI), with an average price target of $64.22, implying a 33.40% upside potential as of October 25, 2024. As per Insider Monkey's Q2 2024 database, the company was in the portfolios of 47 hedge funds.
"Super Micro Computer, Inc. (NASDAQ:SMCI) was the top detractor to returns in the second quarter. Super Micro designs and manufactures server solutions based on modular and open-standard architecture. This modular approach combined with a strong engineering culture helps the company to supply the market with advanced servers and rack-scale compute solutions quickly. After an impressive return in the first quarter, the company offered disappointing near-term earnings guidance, though we do not believe its long-term opportunity has diminished. We expect continued strong growth for several years, although the range of outcomes is quite wide; it is difficult to forecast AI server market growth with precision."
Overall SMCI ranks 8th on our list of the unstoppable stocks that could make you richer. While we acknowledge the potential of SMCI as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SMCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
