A 27-Bagger in 3 Years 😳

Happy Sunday!

Before getting into the news for this week, I’d like to take a second to honor Daniel Kahneman who passed away on Wednesday at the age of 90.

Daniel Kahneman was a nobel-prize winning behavioral psychologist who authored several best-selling books including “Thinking Fast and Slow” and “Noise: A Flaw in Human Judgement”.

Beyond general psychology, Kahneman’s research was also popularized for its applications to the world of economics. Here are a few famous Daniel Kahneman quotes that can serve investors well:

• “Nothing in life is as important as you think it is, while you are thinking about it.”

• “All of us would be better investors if we just made fewer decisions.”

• “The confidence people have in their beliefs is not a measure of the quality of evidence but of the coherence of the story the mind has managed to construct.”

News Roundup

• Trump Media Goes Public: Trump Media and Technology Group, the parent company of Truth Social, debuted on the public markets this Monday under the ticker DJT. According to the company’s filings, Trump Media generated $3.4 million in revenue and $49 million in net losses over the last 9 months. Yet given its current market cap of around $8.4 billion, the company’s price to sales ratio stands at more than 2,000x. 😳

• Who is really winning in AI? Last week, consulting giant Accenture (NYSE: ACN) reported its 2nd quarter earnings and surprised investors when they stated that they had “Generative AI new bookings of over $600 million in the quarter for a total of $1.1 billion through the first half of the fiscal year.” That means, based on the latest estimates, Accenture is currently making more in “AI Revenue” than ChatGPT’s parent company OpenAI.

• Amazon Deepens AI Investments: Speaking of AI, the world’s largest e-commerce and cloud computing company announced that it would be investing $2.75 billion into AI startup Anthropic. This comes less than a year after Amazon invested another $1.25 billion into the company. While the details of the partnership aren’t entirely clear, the sheer dollar amount of the deal shows Amazon is taking AI seriously, as it marks the company’s largest ever minority investment.

• SBF sentenced to 25 years: After a lengthy trial and conviction, Sam Bankman-Fried, the founder of the now notorious crypto exchange FTX, was sentenced to 25 years in prison this week. When given a chance to speak before receiving his sentence, Bankman-Fried continued referring to event as a “liquidity crunch” despite having already been found guilty on several counts of securities fraud.

Company Spotlight

Super Micro Computer

If you keep up with financial news at all you may have seen the ticker “SMCI” tossed around a bit lately.

Perhaps that’s because the stock is up more than 27-fold over just the last 3 years 🤯

So what on earth is happening to Super Micro Computer (NASDAQ: SMCI)?

Let’s take a look:

AI driven demand - Everywhere you look, companies are investing in AI. While that means different things to different businesses, one thing is consistent. They're virtually all spending more on data-center hardware.

And SMCI is right there to benefit. Super Micro manufactures energy-efficient servers and storage systems. So as companies have expanded their server capacity to handle the AI investment, SMCI has seen a surge in demand from both new and existing customers.

Operating Leverage - Since customers are willing to spend more on their data center hardware, not only has Super Micro seen its revenue surge, but its profit margins have expanded as well.

Operating margins for the company have jumped from 3.5% in 2021 to 9.4% over the last 12 months. To put this in perspective, Super Micro’s $372 million in operating income that it generated last quarter is almost 3x what it earned in all of 2021.

In total the company’s earnings per share is up ~15x from 2018.

Multiple Expansion - As is often the case, with improved earnings comes improved expectations, and Super Micro is no exception.

According to FinChat, SMCI’s Forward Enterprise Value to EBIT (earnings before interest and taxes) multiple has gone from ~9x to 29x over the last 3 years.

Meme of The Week

Just Buy Quality

On Wednesday of this week, we hosted a joint webinar with Pieter Slegers (aka Compounding Quality) discussing “How to find high quality stocks.”

For anyone who missed it, we’ve published a full recording of the event on our blog.

In the presentation, Pieter discusses:

• Characteristics of a quality stock

• How to identify a “Moat”

• The screeners he uses

• Examples of great businesses

  And plenty more.