Cray: Big Bet on Supercomputers

04/29/2014 7:00 am EST

Focus: STOCKS

Gregory Dorsey

Editor and Portfolio Contributor, The Leeb Group

While the public’s perception is that supercomputers are a thing of the past, having given way to smaller machines linked together, nothing could be further from the truth, explains Gregory Dorsey of Leeb Investor.

Cray (CRAY) has a storied history, having pioneered supercomputing 40 years ago. Today, it remains a top player in high performance computing (HPC), offering highly advanced, scalable systems and data storage for government, industry, and academia.

Cray’s powerful integrated computers are capable of much greater speeds and are used in a wide range of applications. The market for these servers continues to grow even as the total server market has been lackluster.

Cray’s systems offer solutions in cutting-edge research in science and engineering, such as creating new materials, and designing the latest advances in drugs, predicting severe weather, and for national security…anything that requires analysis of complex data structures.

The company garners 70% of its revenue from the US federal government, with much of the spending coming from the intelligence community.

And despite all the heat on the National Security Agency (NSA) lately, intelligence organizations, such as the NSA, CIA, and Defense Intelligence Agency will continue to spend heavily on high performance computing (HPC) to manage their burgeoning counter-terrorism databases.

Business, too, is in ever greater need of HPC servers to handle and protect customer data. Indeed, while IT spending on servers has been modest in recent years, sales of HPC servers have remained persistently strong.

Cray is investing heavily on the next big thing in computing: a platform that targets the graphical search market. This is a new approach to large-scale data analytics with a huge potential market.

Wall Street’s estimated growth rates for Cray run from 20 to 30% annually for as far as the eye can see. With a market cap of just $1.3 billion and the growing need from organizations to analyze big data, that kind of growth isn’t far-fetched.

The stock has made an impressive run in the past year, and with good reason. Yet it’s not still not too late to make super profits from this supercomputer company.

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