The S&P 500 (SNPINDEX: ^GSPC) is the most widely followed index in the U.S., representing the 500 largest companies in the country. Given the breadth of companies that make up the benchmark, many consider it the most dependable measure of total stock market performance. To qualify for membership in the S&P 500, a company must meet the following prerequisites:
Be based in the U.S.
Have a market cap of at least $8.2 billion
A minimum of 50% of its outstanding shares must be available for trading
Must be profitable on a GAAP basis in its most recent quarter
In aggregate, must be profitable over the preceding four quarters
Super Micro Computer (NASDAQ: SMCI), also known as Supermicro, is one of the most recent entrants to the S&P 500. It made the cut in March, and is one of only 11 companies added to the fold so far this year. To the delight of shareholders, the artificial intelligence (AI)-centric server maker recently completed a 10-for-1 forward stock split. The move was preceded by revenue that jumped 955% and net income that surged 1,030%. This has fueled an impressive rise in its share price, which soared 1,780%, as the rapid adoption of generative AI fueled accelerating sales and boosted its profits.
Despite these impressive gains, many on Wall Street believe there's more upside ahead. Let's look at Supermicro's competitive advantages, the challenges it's facing, and whether or not it's a buy.
Supermicro has a track record of creating custom servers going back 30 years, so when the need for solutions geared toward the unique demands of generative AI exploded on the scene, the company was there to answer the call. The secret to Supermicro's success is its modular building-clock architecture. By manufacturing these components separately, the company can offer a wide variety of servers and storage systems customized to meet each customer's specific needs, from build-to-suit to plug-and-play rack-scale systems. Supermicro also offers support to help customers "install, upgrade, and maintain their computing infrastructure."
Another advantage is the company's strong relationships with the industry's most sought-after chipmakers. This ensures that Supermicro has access to a steady supply of the most cutting-edge semiconductors to power its systems. Furthermore, energy efficiency has captured the spotlight, the result of power-hungry AI solutions. Supermicro's long history of focusing on energy efficiency quickly attracted the industry's attention.