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Shares of Super Micro Computer (SMCI) have been on a rough ride in recent months. A scathing August report alleging accounting manipulation from short-seller Hindenburg Research, followed by a delay in filing its 10-K annual report, helped to kick off the stock's nosedive off close to 62% from its 52-week highs. Although the company did address the Hindenburg allegations in a letter to shareholders, investor sentiment was further rattled by a Wall Street Journal report in late September stating that Super Micro is now the subject of a Justice Department probe over its accounting practices.
Yet, despite all the negative headlines, SMCI stock remains a significant outperformer in 2024. The stock has soared 63.5% on the year so far, easily outperforming both the S&P 500 Index ($SPX) and the Nasdaq Composite ($NASX). On a longer-term basis, the stock has been a legitimate multi-bagger, boasting a five-year return of more than 2,300% - on pace with artificial intelligence (AI) behemoth Nvidia (NVDA).
That said, the negative headlines have certainly had an impact, with SMCI currently down more than 62% from its 2024 highs, set in March.
However, the recent news for Super Micro has started to turn positive. The company's shares surged this past week as investors cheered product updates that seemed to suggest the company's core business is still booming, including a new suite of liquid cooling products - sending the AI server maker's shares up by more than 15% on Monday alone.
So, is SMCI out of the woods after a long, deep correction? Let's see if it's a good time to buy the dip.
About Super Micro Computer Stock
Founded in 1993, Super Micro Computer (SMCI) is a leading global provider of high-performance computing, storage, and networking systems. The company specializes in designing and manufacturing server systems, workstations, and components for various industries, including cloud computing, data centers, enterprise IT, and AI.
Valued at a market cap of $2.59 billion, the company boasts a heavyweight customer list headlined by the likes of AI poster child Nvidia and electric vehicle (EV) market leader Tesla (TSLA).
As a classic “pick and shovel” bet on the booming artificial intelligence market, let's see what's driving growth for SMCI.
Fresh Tailwinds for SMCI
The primary markets served by Super Micro Computer are set for boom times. According to industry forecasts, the AI server market is forecast to reach a market size of $177.4 billion by 2032, clocking a CAGR of 18% between 2024 and 2032. Further, IDC stats suggest that data center storage capacity is expected to grow at a CAGR of 18.5% from 10.1 zettabytes (ZB) in 2023 to 21.0 ZB in 2027, fueled largely by AI demand.
On Monday, management recently revealed that it has delivered 2,000 liquid-cooled racks since June, and “recently deployed more than 100,000 GPUs with liquid cooling solution for some of the largest AI factories ever built.”
CEO Charles Liang remained bullish too, saying, “Supermicro continues to innovate, delivering full data center plug-and-play rack-scale liquid cooling solutions. Our complete liquid cooling solutions, including SuperCloud Composer for the entire life-cycle management of all components, are now cooling massive, state-of-the-art AI factories, reducing costs and improving performance.”
That puts Super Micro well on its way to its target production capacity of 3,000 DLC rack servers per month by FY2025. This growth trajectory further cements the company's leadership in the AI rack server market.
SMCI followed up Monday's well-received news with the introduction of its new 3U server on Tuesday, optimized for AI inferencing, and the unveiling of its AMD (AMD)-powered H14 server family of its products on Thursday.
Moreover, on Sept. 24, the company launched Intel (INTC)-based X14 Servers featuring Intel Xeon 6900 Series Processors with P-Cores, allowing for customized solutions with full rack integration. These servers offer flexibility in CPU and GPU configurations, making them adaptable for various data center environments.
Inside SMCI's Fundamentals
One key aspect behind the gravity-defying rise in Super Micro stock over the years has been its significant top-line and bottom-line growth. Over the past 10 years, the company has grown its revenues and earnings at impressive CAGRs of 26.12% and 36.41%, respectively.
In its fiscal Q4 of 2024, Super Micro's EPS grew 78.1% to $6.25, which fell short of estimates. Revenues surged to $5.29 billion, up an impressive 143% from the year-ago period on “record demand of new AI infrastructures,” which edged past the consensus $5.31 billion forecast.
For the current quarter, management guided for per-share earnings in the range of $6.69 to $8.27, with revenue expected between $6 billion and $7 billion. Full-year revenue is projected between $26 billion and $30 billion. The guidance topped Wall Street's estimates, which called for fiscal first-quarter earnings of $7.68 per share on $5.47 billion, with full-year revenue projected at $23.6 billion.
Super Micro Computer closed the quarter with a cash balance of about $1.7 billion, higher than its short-term debt levels of $1.5 billion.
While investors are still awaiting its 10-K filing, Super Micro Computer has said that it “does not anticipate… any material changes to its results for the fiscal year and quarter ended June 30, 2024” as a result of the delay.
However, the fiscal Q4 EPS shortfall, along with a miss on gross margins (11.3%, down from long-term averages between 14-17%), sent SMCI plunging 20% on Aug. 7. Analysts at Bank of America downgraded the stock to “Neutral” following the report, warning of margin pressure throughout fiscal year 2025 on increased business from lower-margin hyperscale customers and liquid cooling ramp costs.
Overall, analysts tracking the stock are expecting Super Micro Computer to report earnings per share (EPS) growth of more than 41% for fiscal year 2025, with revenue expected to surge 87% - both significantly outpacing the tech sector medians.
What's the Analyst Forecast for Super Micro Computer Stock?
Despite some recent downgrades, the consensus rating on Super Micro stock is still a “Moderate Buy” among the 14 analysts in coverage. Four have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 8 have a “Hold” rating, and 1 has a “Strong Sell.”
Following the stock's 10-for-1 split, which took effect on Oct. 1, the mean price target for SMCI is $72.81. That indicates an expected upside potential of 52.3% from current prices.
Valued at 13.93x forward adjusted earnings and 0.97x forward sales, SMCI is priced at a notable discount to its tech sector peers. For investors who can stomach the potential short-term volatility amid lingering uncertainty related to the accounting probe, Super Micro Computer stock could be a rare bargain-priced AI growth stock to scoop up right now.
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