The U.S. equity market ended 2023 on a high note. With sectors such as healthcare, energy, and materials set to recover, the stock market may continue to demonstrate impressive performance, at least in early 2024. The possibility of the Federal Reserve cutting interest rates is further helping build optimism in the stock market.
Hence, if you have $1,000 that is not needed to pay bills or for contingencies, then you can consider picking up small stakes in exceptional stocks with impressive growth prospects to enjoy robust returns in 2024. Here's why Super Micro Computer (SMCI 3.12%) and Toast (TOST -0.24%) fit the bill.
1. Super Micro Computer
Once clubbed with other run-of-the-mill server manufacturers, Super Micro has now differentiated itself as a leading provider of application-optimized and energy-efficient server and storage systems. The company's services are used by nearly 1,000 clients in more than 100 countries across end markets, such as cloud computing, 5G mobile networks, autonomous driving, edge computing, and the Internet of Things.
Super Micro has also emerged as a major beneficiary of the boom in the AI landscape, as shown by the robust demand and faster-than-forecast expansion of backorders for its large language model (LLM)-optimized server solutions in the fiscal 2024 first quarter (ending Sept. 30, 2023).
Super Micro's modular servers enable clients to easily and cost-effectively replace or scale their infrastructure without needing to overhaul the whole system. The company's liquid cooling technology products are also helping address high energy costs, power grid constraints, and thermal challenges posed by the new AI-optimized servers. Besides enjoying higher pricing power, these technological advantages have also helped the company attract customers away from other tier 1 server manufacturers.
Super Micro also has been actively partnering with key component suppliers such as Nvidia, Advanced Micro Devices, and Intel to get early access to the most advanced semiconductor technologies. This, in turn, allows the company to design and launch new products ahead of the competition -- and then send them to customers for early evaluation. Super Micro can also prepare the product and build inventory, all ahead of the competition. This translates into a significant time-to-market advantage for the company.
Super Micro has also focused on expanding its manufacturing and production capacity. The company is planning a new facility in Malaysia, which is expected to start operations in late 2024.
Against the backdrop of robust technology, multiple collaborations with suppliers, and expanding manufacturing capacity, Super Micro seems to be a compelling pick for 2024.
2. Toast
Toast's comprehensive cloud-based platform delivers a range of software solutions, such as inventory management and digital ordering, along with financing and payment processing services, specifically tailored to meet the needs of the restaurant industry.
While the company posted impressive revenue growth as well as a narrowing of losses in the fiscal 2023 third quarter (ending Sept. 30, 2023), investors were worried about its weak outlook for gross payment volume per location amid macroeconomic uncertainties in the fourth quarter. Despite these headwinds, there are still many reasons to like the stock in 2024.
First, Toast continues to add new customers at a healthy clip. The company added 6,500 net new locations and ended the third quarter with nearly 99,000 locations. An increase in locations directly translates into the expansion of the company's business.
Second, Toast's platform is being used across multiple service models in the restaurant industry, including table service, counter service, takeout, curbside, hybrid service, catering and events, wholesale, drive-thru, and restaurant retail. The company also provides products for different types of eateries, including cafes and bakeries, to help them grow revenue, increase the speed of service, and get more repeat customers. With a broad portfolio comprising several offerings, the company has significant scope to upsell and cross-sell to its existing customer base.
Third, Toast's revenue grew at a healthy 37% year over year in the third quarter. However, the company's annualized recurring run rate (ARR) rose even faster at 40% year over year to $1.2 billion. A rising ARR indicates the strength of the company's subscription business, which, in turn, implies higher revenue visibility for the company.
Fourth, although loss-making, Toast is showing signs of improving financial health. In the third quarter, the company reported a net loss of $31 million, a significant improvement from a $98 million loss in the same quarter of the prior year.
Finally, Toast is targeting a very large target addressable market worth more than $110 billion. With an annual run rate of only $3.6 billion, there is still much scope for growth in the coming years.
Considering these positives, Toast can prove to be an attractive pick for 2024.
Manali Bhade has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Toast. The Motley Fool recommends Intel and Super Micro Computer and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
