Super Micro's super surge: 18.87% gain to begin the year

Super Micro Computer Inc. NASDAQ: SMCI started 2024 with a bang, rallying 18.87% in the past week. 

The stock is in a buy zone, trading just below its January 10 high of $357.99.

The company's business doesn't sound glamorous: It makes high-efficiency server and storage systems for enterprise data centers, cloud computing, artificial intelligence, 5G and edge computing. The latter processes data close to the source to boost efficiency.

Benefiting from other companies' success

There's an old investing concept called "cousin stocks," which refers to a company that benefits from another's success. You don't hear that term so much anymore, but the phenomenon is alive and well. 

Super Micro has been riding the coattails of AI leaders Intel Corp. NASDAQ: INTC, Nvidia Corp. NASDAQ: NVDA and Advanced Micro Devices NASDAQ: AMD because it works closely with all of them.

That means Super Micro collaborates with these big chip makers to develop hardware designed to complement chip capabilities, rolled out to the market simultaneously. 

"Our collaborative approach with these vendors allows us to coordinate the design of our new products with their product release schedules, thereby enhancing our ability to rapidly introduce new products incorporating the latest technology," the company said in a regulatory filing.

Products supporting Intel, Nvidia and AMD

For example, in the company's fiscal 2023, which ended in June, Super Micro announced over 50 products supporting Intel’s new Sapphire Rapids data center central processing unit. It also released products to support AMD’s Genoa data center CPU, and workstations to support the new Nvidia H100 GPUs.

CEO Charles Liang cited ongoing supply constraints for graphics processing units when the company reported results for the first quarter of fiscal 2024 in November. 

“We are working diligently to meet these challenges, and given my confidence in my team and the strong demand we are seeing for AI infrastructure and compelling new and upcoming compute and storage products, we are now raising our fiscal year 2024 outlook to $10 billion to $11billion in revenue,” he said in the release statement.

Stocks that perform well by hitching their wagons to others' stars are typically smaller and less well-known, which is the case here. With a market capitalization of $19.07 billion, Super Micro has grown but is not yet a component of the S&P 500. That's because so many other tech stocks have grown into giants recently. 

Under analysts' radar

Small is a relative term, but Super Micro doesn't command the same attention from Wall Street analysts as its behemoth customers do. 

MarketBeat's Super Micro Computer analyst forecasts show fairly sparse coverage versus those of the tech titans tracked in the Technology Select Sector SPDR Fund NYSEARCA: XLK.

Wall Street analysts frequently cover a stock if they believe there's investment banking, lending or other business from a company. As a company grows, there's a greater likelihood that analysts will jump on the bandwagon.

That, in turn, brings greater attention from institutional investors. As a bonus, analysts typically initiate coverage with a positive rating, which lures institutional investors. 

Steady increase in trading volume

Take a look at Super Micro’s chart. You can see a steady increase in trading volume since April 2022. The volume increase was even more pronounced than in larger stocks like Intel, Nvidia and AMD.

Super Micro stock took a hiatus starting in August and cleared a buy point above $357 on January 10. The stock pulled back in the following session but remains in a buy zone; investors may want to wait until it shows a day of upside trade before jumping in rather than chasing it lower. 

The company reports its fiscal second quarter on January 30, with analysts expecting earnings of $3.87 a share on revenue of $2.78 billion. Both would be year-over-year increases. The company is expected to grow earnings by 48% this year to $17.47 per share.