This summary of the video was created by an AI. It might contain some inaccuracies.
00:00:00 – 00:24:10
The video provides an in-depth analysis of Super Micro Computer (SMCI), a company that has witnessed a stock price surge of 766% in the past year, outperforming giants like Nvidia, Meta, and Palantir. SMCI specializes in servers and storage solutions essential for deploying AI chips, with substantial revenue growth driven by the AI revolution. Despite its rapid growth, the speaker argues that SMCI remains undervalued, even when considering competition from Dell and Hewlett Packard Enterprise (HP).
The speaker uses various financial metrics, including discounted net income valuation, to assess SMCI's intrinsic value at $1,005 per share, against a current share price of $800, signaling a potential investment opportunity. SMCI's specialized, high-performance computing products, particularly for AI and cloud applications, allow it to stand out against more generalized offerings from competitors like Dell and HP. Furthermore, the analysis includes comparing SMCI's forward PE ratio and growth projections favorably to those of Dell and HP.
Investment strategy discussions feature buying shares in tranches using Fibonacci retracement tools to manage entry points and risk. The speaker also considers selling a cash-secured put option at a $600 strike price to hedge and collect premiums. Additional comparisons with other AI-related stocks reveal that SMCI is among the cheaper options. While SMCI has a narrower economic moat than tech giants like Microsoft or Nvidia, its current valuation provides a compelling case for investment.
The video concludes with the speaker promoting investment resources and encouraging viewers to learn more through live sessions on investing and trading.
00:00:00
In this part of the video, the focus is on the incredible performance of Super Micro Computer (SMCI) stock, which has surged by 766% in the past year, outperforming notable companies like Nvidia, Meta, and Palantir. Initially overlooked, the speaker revisits SMCI, finding it still undervalued despite its price hike. SMCI specializes in AI services, including servers and storage solutions, crucial for deploying AI chips such as Nvidia’s GPUs. The ongoing AI revolution is driving demand, making SMCI’s products vital for businesses adopting AI technologies to remain competitive.
00:03:00
In this part of the video, the speaker discusses the importance of AI chips from Nvidia, AMD, and Intel and explains that Super Micro Computer manufactures the server racks that house these chips. The speaker metaphorically describes AI chips as ice cream and Super Micro Computer’s products as the cones needed to enjoy the ice cream. The company is experiencing rapid revenue growth and increasing net profit due to high demand in the AI sector. Although the company had inconsistent cash flow in previous years, it has recently become positive and is showing strong financial health with impressive profitability and debt ratios. The speaker acknowledges missed investment opportunities but emphasizes that investing is a marathon, and it is still possible to find value in growing companies.
00:06:00
In this segment, the speaker discusses the intrinsic value analysis of a company by using a discounted net income valuation model. They input data such as net profit ($732 million), debt ($375 million), and cash equivalents ($725 million), to estimate a 37% growth rate over the next five years. This calculation provided an intrinsic value of $1,005 per share, but with the current share price at $800, the company appears to be 20% undervalued. However, the speaker emphasizes the importance of considering the company’s competitive landscape to ensure sustainable profit and growth. They then analyze Super Micro Computers’ major competitors, Dell and Hewlett Packard Enterprise (HP), highlighting that SMCI returned 766% in the last year compared to Dell’s 97% increase and HP’s 9% decrease. The reason for SMCI’s outperformance, despite similar product offerings from Dell and HP, is explored.
00:09:00
In this part of the video, the speaker discusses the differences between companies specializing in high-performance computing (HPC) and AI solutions, particularly focusing on SMCI’s specialization in server and related hardware compared to Dell and HP’s more generalized product offerings. The analogy used is that SMCI makes specialized “ice cream cones” for the “ice cream” provided by Nvidia and AMD, making them a better fit than the generalized solutions offered by Dell and HP.
SMCI is gaining market share due to its specialized, high-density, performance-driven solutions optimized for AI. Dell and HP lack economic moats and are generalized, thus not having a competitive advantage. The valuation comparison shows that SMCI, despite a higher forward PE ratio of 27 times, is projected to grow at 48% over the next five years, while Dell and HP, with lower PEs, are projected to grow at just 10% and 2%, respectively.
The speaker emphasizes the importance of quality over price, preferring to pay a fair price for an excellent company rather than a cheap price for a mediocre one. SMCI’s potential intrinsic value is noted as $1,000, currently offering a 20% discount at $800. In contrast, Dell and HP may appear cheap but do not provide the same growth potential or quality.
00:12:00
In this segment, the speaker evaluates the investment potential of SMCI compared to other tech companies. They describe SMCI as having a narrow economic moat due to its proprietary server designs for AI and cloud needs, which could be replicated by companies like Dell and HP with sufficient R&D investment. Despite this, the speaker would still invest in SMCI but not as heavily as in companies with a broad moat like Microsoft or Nvidia. Further, they compare SMCI to other AI-related stocks they own, mentioning that in terms of price-to-sales ratio, SMCI is the second cheapest after Amazon. The speaker provides additional comparisons but notes that not all relevant companies are included in this overview.
00:15:00
In this segment, the video discusses the valuation and technical analysis of several AI-related stocks. It highlights that SMCI is among the cheapest, selling at a 20% discount to its intrinsic value based on discounted cash flow and net income calculations. Other stocks like Google, Palantir, Amazon, and Meta are also compared, showing various discounts and premiums. The video then moves to technical analysis, emphasizing the importance of not buying stocks when they are peaking but rather after a pullback or consolidation breakout. SMCI recently experienced a breakout followed by significant gains but showed a bearish engulfing candle, indicating a possible price drop. The challenge of identifying the bottom of a retracement for buying decisions is discussed, noting the inherent uncertainties in timing the market.
00:18:00
In this part of the video, the speaker discusses their investment strategy for buying shares in tranches to manage risk, preferring to average in their position rather than buying all at once. They explain using the Fibonacci retracement tool to identify potential support levels at 38.2%, 50%, and 61.8% retracements as entry points. The speaker also considers the 40 EMA but doubts the stock will retrace to the 50 moving average due to strong revenue and profit growth. Additionally, they contemplate selling a cash-secured put option at a $600 strike price to collect premium, indicating the current market price for the option.
00:21:00
In this part of the video, the speaker outlines a strategy involving selling a put option at a $600 strike price, which would yield a premium of $22.85 per share, or $2,285 for one contract of 100 shares. If the stock remains above $600 at expiration, the put becomes worthless, and the seller keeps the premium. If the stock drops below $600, the seller must buy the shares at $600, effectively at a net cost of $577 per share after accounting for the premium. The speaker is comfortable with this because it represents a significant discount. The segment concludes with the speaker promoting their investment resources and courses.
00:24:00
In this part of the video, the speaker directs viewers to visit global.com to learn more about investing and trading through live online sessions. The speaker signs off with a message, “This is Adam C, and may the markets be with you.”