TipRanks Smart Growth Portfolio #7: Liquid Force
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Dear Investors,
Welcome to the 7th edition of the Smart Growth Portfolio and Newsletter.
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Note to Investors:
We’re officially in the middle of a global tariff war, and the ripple effects are hitting stock markets hard. Volatility has spiked, earnings visibility is almost non-existent, and valuation models are flying blind. It’s messy. Still, as we all know, markets always bounce back — it’s just a matter of when. Instead of getting lost in the noise, we’re zeroing in on what actually matters: strong fundamentals, resilient business models, and industries with staying power. When great companies trade at a discount to their peers or history, that’s our signal.
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Portfolio News and Updates
❖ ACM Research (ACMR) announced that one of its tools – the Ultra ECP ap-p – won the 2025 3D InCites Award in the Technology Enablement category. The Ultra ECP ap-p is a specialized chip manufacturing tool focused on electrochemical plating (ECP) for copper deposition, particularly for fan-out panel-level packaging (FOPLP). The award recognizes ACMR’s innovation in enabling high-volume production of this next-gen packaging technique, which is important for AI chips and other high-performance semiconductors. The award underscores ACM’s growing credibility in advanced packaging and highlights its role as a potential enabler in the future semiconductor ecosystem.
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This Week’s Top Growth Pick: Super Micro Computer (SMCI)
Super Micro Computer, Inc., aka Supermicro, designs and manufactures high-performance servers tailored for AI, cloud, and enterprise workloads, with a strategic emphasis on energy efficiency and liquid cooling. Its modular systems are engineered for rapid customization, enabling deployment across a wide range of industries, from hyperscalers to government infrastructure. By combining in-house design with vertical integration, Supermicro delivers tightly optimized hardware tuned to the latest compute demands. The company emphasizes speed to market and flexibility, enabling customers to deploy cutting-edge infrastructure without long development cycles. Liquid-cooled solutions have become central to its offering, addressing thermal and power constraints in next-gen data centers. As AI models scale and power density rises, Supermicro is increasingly viewed as a key infrastructure provider for organizations building out advanced, energy-efficient computing environments to reduce operational costs and improve performance.
Source: Super Micro Computer, Inc. Website
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From Racks to Riches
Super Micro Computer was founded in 1993 by Charles Liang, who remains CEO today. Initially focused on motherboard innovation and server components, the company gradually scaled into a vertically integrated server manufacturer known for rapid customization and engineering control. Over the past five years, Supermicro has undergone its most significant phase of transformation, propelled by the accelerating demand for AI-optimized infrastructure and energy-efficient data center solutions.
From 2020 onward, the company prioritized building modular, GPU-dense systems capable of handling high-performance workloads, with a particular focus on liquid cooling to manage thermal loads in constrained environments. That strategic pivot aligned perfectly with the needs of large language model training, high-frequency inference, and rack-scale AI deployments. Tight product alignment with Nvidia, AMD, and Intel allowed Supermicro to respond to chip cycles with unusual speed, making it a preferred vendor for hyperscalers and other enterprise AI adopters.
As demand surged, Supermicro expanded its manufacturing footprint across the U.S., Southeast Asia, and Europe, reducing its reliance on any single geography and allowing for rapid deployment. While the company has remained acquisitive-light, it invested heavily in infrastructure and platform breadth, moving beyond servers to full-rack solutions and data center integration services.
However, the company’s momentum was tempered in 2024 by regulatory challenges. A delayed 10-K filing, coupled with SEC and DOJ inquiries, introduced uncertainty around internal controls and financial reporting. Although a special committee found no misconduct by senior leadership and Supermicro ultimately regained compliance, investor sentiment took a hit. The stock, once trading at euphoric multiples during the early AI buildout, now trades at a fraction of its peak, reflecting both macro volatility and lingering concerns around governance and transparency.
Still, the long-term fundamentals remain intact. Supermicro’s ability to deliver performance- and cost-optimized systems ahead of legacy OEMs has preserved its relevance in an increasingly competitive space. If it can sustain product execution while restoring confidence in corporate oversight, the company is well-positioned to capture further share in the AI infrastructure wave. The next phase will depend as much on rebuilding institutional trust as it does on delivering next-gen hardware.
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The Brains Behind the Racks
Super Micro Computer operates at the infrastructure core of modern AI and cloud computing, delivering fully integrated, high-performance servers designed for dense, accelerated workloads. Unlike legacy OEMs that rely heavily on outsourced components and multi-year refresh cycles, Supermicro’s business model is built around speed, control, and customization. The company designs, engineers, and assembles its systems in-house, allowing it to move faster than competitors and offer highly tailored server solutions optimized for specific use cases like AI training, inference, edge compute, and enterprise-scale virtualization.
Its standout advantage lies in vertical integration and modularity. Supermicro builds entire rack-level systems – including power, cooling, chassis, and GPU configurations – fine-tuned for maximum performance and energy efficiency. That edge has become critical as AI models grow larger and thermal constraints tighten. Its leadership in liquid-cooled systems has given it a meaningful head start in next-generation data center design, especially among customers looking to lower operating costs and increase compute density without waiting for OEM release cycles.
While the global server market remains dominated by Dell, HPE, and Lenovo, Supermicro has steadily chipped away at their share, particularly in high-growth AI and HPC clusters. It is now estimated to hold roughly 5-7% of the overall global server market, but its share of the AI server market stands at approximately 23% as of early 2025, placing it among the top-tier vendors in this rapidly expanding segment. In high-performance computing, Supermicro ranks within the top five vendors globally by revenue share, competing directly with HPE, Dell, Lenovo, and Atos. Its outsized presence in performance-sensitive deployments reflects its strategic edge where speed, customization, and power optimization are paramount.
Supermicro’s total addressable market includes the $150+ billion global data center hardware space, with AI and GPU-accelerated servers representing the fastest-growing subsegment. That niche alone is projected to expand from $39 billion in 2025 to over $350 billion by 2034, growing at a CAGR of more than 27%. With its ability to out-engineer and out-deliver slower incumbents, Supermicro is well-positioned to grow faster than the market, particularly as customers shift toward rack-scale solutions and liquid-cooled deployments. The company’s agility in adapting to new silicon cycles and compute requirements gives it a structural advantage in this evolving landscape.
Source: Precedence Research
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Cooling Under Load
Supermicro has delivered exceptional top-line growth over the past three years, with revenue expanding at a CAGR of approximately 71%, driven by surging demand for AI-optimized infrastructure. About 70% of SMCI’s revenue now stems from GPU server solutions tailored for AI applications, reinforcing its pivotal role in the evolving compute landscape.
In fiscal 2024, the company reported revenue of nearly $15 billion, a 110% year-over-year increase. Non-GAAP EPS has also grown meaningfully, with a three-year CAGR of 113%. For FY2024, non-GAAP EPS reached $1.92, up 68% from the prior year.
SMCI marked a strong start to fiscal 2025, with FQ1 revenue and non-GAAP EPS growing 180% and 119% year-over-year, respectively. In FQ2, the company reported preliminary revenue of $5.6-$5.7 billion, reflecting a 54% YoY increase. However, non-GAAP EPS came in at $0.58-$0.60, representing just 5% YoY growth and falling slightly below consensus expectations.
Margins compressed in the quarter, with non-GAAP gross margin declining to 11.9%, down from 13.1% in FQ1. This pressure is tied to higher input costs, including more expensive Nvidia GPUs such as the Blackwell series, as well as heightened pricing competition across AI server contracts.
Beyond earnings, SMCI’s profitability profile remains structurally sound. Non-GAAP operating margins in FY2024 approached mid-teens levels, supported by tight cost discipline and operating leverage. Return on invested capital (ROIC) has consistently remained above 20%, underscoring efficient capital deployment. The company is asset-light relative to peers, with high inventory turnover and disciplined capex tied directly to customer demand visibility.
As of the latest quarter, Supermicro held a strong net cash position, with over $1 billion in cash and equivalents and zero long-term debt. This balance-sheet flexibility gives the company ample runway to invest in capacity, navigate supply chain volatility, and defend margin amid pricing pressures. Operating cash flow turned meaningfully positive in FY2024, with free cash flow expected to scale further in FY2025 as expansion capex moderates.
Looking ahead, SMCI revised its full-year FY2025 revenue guidance to $23.5-$25 billion, down from the previous $26-$30 billion range. The company cited supply chain constraints and aggressive pricing dynamics as key drivers. Nonetheless, management reiterated its confidence in the underlying demand trend, maintaining its longer-term target of reaching $40 billion in revenue by FY2026.
Source: TipRanks.com, SMCI data
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De-risking the Build
While Supermicro operates globally, its exposure to China-related trade risks is moderate and decreasing, thanks to proactive supply chain diversification and strategic manufacturing expansion. The company continues to assemble most of its systems in the U.S., but still sources key components – such as motherboards and power supplies – from suppliers across Asia, including mainland China. This leaves it partially exposed to potential tariffs, export restrictions, or geopolitical bottlenecks tied to escalating U.S.-China tensions.
To mitigate these risks, Supermicro has taken deliberate steps to expand its domestic manufacturing footprint, including a major new campus in San Jose, California. This facility significantly boosts U.S.-based capacity for high-performance, liquid-cooled AI servers, supports compliance with “Buy American” provisions, and enhances access to government and enterprise customers that prioritize traceable, locally built infrastructure. Supermicro’s alignment with Nvidia on H100 and H200-based systems gives it a defensible moat in U.S.-centric AI infrastructure, especially as domestic AI server demand ramps across the public and private sectors.
Internationally, the company has also built manufacturing facilities in Malaysia and Europe, enabling it to serve customers across EMEA and Asia-Pacific without depending on China-based production. This regional diversification reduces supply chain risk, improves delivery timelines, and strengthens alignment with local logistics and compliance requirements.
Importantly, Supermicro’s business is not demand-exposed to China. Its customer base is concentrated in the U.S. and allied markets, particularly among hyperscalers, AI labs, and public sector buyers. The company’s exposure lies on the supply side, not the revenue side. While shifts in trade policy or component availability remain a potential headwind, Supermicro’s ongoing localization strategy makes it one of the more strategically positioned hardware vendors in a deglobalizing environment, and well-insulated from the worst of a U.S.-China decoupling.
Source: Super Micro Computer, Inc. Website
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Shakeout Setup
Supermicro’s stock hit an all-time high of $114 in March 2024, but began sliding soon after due to a confluence of factors. At peak, the stock was priced for near-flawless execution amid AI infrastructure hype, with expectations it would become the hardware backbone of the AI buildout. That left little room for error.
In late March, SMCI delayed its FY2024 10-K, citing internal control reviews and auditor coordination. This alone rattled confidence in a stock trading at elevated multiples – even before short-seller Hindenburg Research entered the picture.
Hindenburg’s report alleged aggressive revenue recognition and opaque disclosures, including claims of channel-stuffing and overstated performance. Though unproven, the report damaged sentiment, especially among institutional investors. SMCI later confirmed filing delays and became subject to SEC and DOJ scrutiny. Although no wrongdoing has been established, the optics of federal investigations amplified uncertainty.
As shares continued to fall, short interest surged, peaking in early April 2025, just as the Trump administration rolled out new China tariffs. Despite minimal demand exposure to China, SMCI was swept into the broader selloff of hardware stocks linked to Asia-based supply chains, compounding the pressure.
After the roller-coaster ride, SMCI now trades near its pre-surge levels, at around $30. The collapse has also compressed its valuation sharply: the stock now displays a ~35% discount to the technology sector average and is valued similarly to much slower-growing peers like HPE and Dell.
Based on projected cash flows, SMCI appears undervalued by over 80%, offering a rare high-growth/deep-value setup. While Wall Street currently rates it a “Hold,” we view that as a reflection of short-term sentiment and sector volatility – not fundamentals. The average analyst target implies nearly 50% upside over the next 12 months. Though volatility may persist, we believe the current price offers a rare opportunity to gain exposure to one of the few pure-play AI infrastructure enablers growing at warp speed.
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To Sum It All Up
Supermicro is a high-growth infrastructure provider powering AI and cloud computing with modular, energy-efficient server systems. Built for speed, customization, and thermal performance, its vertically integrated model enables rapid alignment with next-gen silicon and data center demand. The company has gained meaningful ground in AI and HPC deployments, outpacing legacy OEMs through faster execution and deeper GPU integration. Strategic U.S. expansion and global manufacturing diversification have reduced geopolitical risk and strengthened its competitive positioning. While recent governance concerns and shifting sentiment have reset the stock’s valuation, Supermicro’s role in the AI buildout remains structurally intact. With strong execution, capital discipline, and long-term tailwinds, the company stands out as a rare combination of scale, velocity, and deep value.
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Smart Growth Portfolio
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Click here for more stock analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
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