This New S&P 500 Artificial Intelligence (AI) Stock Is Growing 5 Times Faster Than Its Industry | The Motley Fool

Artificial intelligence (AI) has stirred up a lot of excitement in the investment community — and for good reason. The technology has what it takes to reshape just about every industry and our daily lives, so there’s possibly a real revolution ahead. And giants in the field, from Alphabet Chief Executive Officer Sundar Pichai to Nvidia CEO Jensen Huang, say that AI may represent a bigger transformation than the Internet.

AI promises new and better medicines more quickly, for example, and more efficiency across businesses and in our daily lives. Conversational assistants that have been released in recent times could be just the beginning. And analysts predict the AI market may surpass $1 trillion by the end of the decade, suggesting we’re really in the early days of this growth story right now.

Today is a great time to get in on players that could stand out in this exciting industry. Recently, the S&P 500 recognized one by including it in the index — confirmation that it’s one of the most valuable publicly traded companies today. AI is driving explosive growth for this particular player, and the company has even grown five times faster than its industry over the past 12 months. Read on to find out more.

A 30-year-old company

Many companies can be considered AI players today — from those that make chips and components or sell AI services to those that are using the technology to improve their businesses or innovate. The one that the S&P 500 recently welcomed isn’t new to the terrain — the company recently celebrated its 30th nniversary. But this player’s business, after slow and steady growth over time, took off along with the AI boom, thanks to its business with AI customers.

I’m talking about Super Micro Computer (SMCI -3.41%), the developer of workstations, servers, full rack scale solutions, and other equipment powering data centers and AI projects. The company reported its first $3 billion quarter recently — an amount that it made in one year back in 2021. And the stock has soared a mind-boggling 2,000% over three years.

As mentioned, Supermicro has posted growth that’s beaten the industry average over the past year or so, and now the questions are: “Why?” and “Can it continue?”

First, a look at why Supermicro has been so successful. The company’s had a few decades to build its capabilities and expertise, so now, with AI demand soaring, it’s ready to deliver.

On top of this, customers are seeking Supermicro’s equipment for two particular reasons. The company’s building-blocks technology — with common elements used throughout product lines — help it to quickly customize each individual product to suit a customer’s needs. And Supermicro works closely with chipmakers such as Nvidia, Intel, and Advanced Micro Devices so that it may include their latest chips in its equipment.

Record demand in recent quarters

A customer can get the latest technology quickly and tailored to its particular project. This is a huge plus and obviously has kept customers with AI plans flocking to Supermicro. The company has reported record demand in recent quarters for its AI systems at rack scale including chips made by the world’s top players.

Now let’s consider whether this demand could continue. The general growth environment should act as a tailwind for Supermicro as more and more companies launch and scale up AI projects in the coming years. So the backdrop is positive. Supermicro’s building-blocks construction method and work with chipmakers should continue to be favorable, too, and the company is ramping up production with a focus on lower cost and higher volume at a new factory in Malaysia.

Finally, Supermicro could win thanks to its development of direct liquid cooling (DLC) technology. AI data centers are heat-intensive, so the need for a green and efficient cooling system is enormous. This could be the next growth driver for Supermicro. The company expects its DLC systems to take as much as 30% market share in the coming two years, the Taipei Times reported, citing Supermicro’s presentation at the Computex event. That’s after going from zero market share to less than 1% over the past three decades.

All of this means that this new S&P 500 AI company may continue growing faster than its industry — and this looks like great news for earnings, as well as long-term shareholders.