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Artificial intelligence (AI) has become a transformative force in just about every industry globally. Ever since the AI rally began, many tech stocks have experienced hypergrowth. One such company is Super Micro Computer (SMCI), which has rallied an eye-catching 174.3% year-to-date, compared to the tech-heavy NASDAQ Composite’s ($NASX) gain of 14.6%.
The company is known for its high-performance, high-efficiency server technology and solutions. It is currently using AI to improve its product offerings and drive growth.
Over the last 52 weeks, SMCI stock has gained 198%. The company has recently been added to the S&P 500 Index ($SPX) due to its outstanding financial performance.
Super Micro Computer designs, develops and manufactures high-performance server solutions. As AI requires complex and large-scale data computations and liquid cooling, demand for Super Micro Computer's products in data centers, cloud computing, enterprise IT, big data, and other industries has peaked.
With a strong emphasis on customization, energy efficiency, and strategic partnerships, SMCI has strengthened its market position and delivered impressive financial results.
In the third quarter of fiscal 2024, revenue increased by 200.7% to $3.85 billion. Additionally, adjusted earnings per share (EPS) increased to $6.65, sharply higher than $1.63 per share in the prior year quarter.
Collaborations with key technology players such as Nvidia (NVDA), Intel (INTC), and AMD (AMD) have improved Super Micro's product offerings and market reach. In March, SMCI introduced three Supermicro SuperCluster solutions powered by Nvidia's latest GPUs, as well as its networking and AI Enterprise Software.
Charles Liang, President and CEO, stated, “Strong demand for AI rack scale PnP solutions, along with our team’s ability to develop innovative DLC designs, enabled us to expand our market leadership in AI infrastructure. As new solutions ramp, including fully production ready DLC, we expect to continue gaining market share. “
The company increased its fiscal 2024 revenue guidance, which now ranges from $14.7 billion to $15.1 billion. Earnings are expected to range from $23.29 to $24.09 per share. Management's guidance is consistent with consensus expectations.
At the end of the third quarter, the company had $2.1 billion in cash and cash equivalents and $85 million in long-term debt.
Management stated that to sustain its rapid growth, the company is making "significant investments in production, operations, management software, cloud features, and customer service." SMCI intends to expand its AI portfolio by incorporating Nvidia's upcoming next-generation GPUs, as well as Intel Gaudi2/3 and AMD MI300X/A GPUs.
This strong balance sheet will help the company expand its product portfolio. Additionally, the company has raised $3.28 billion through a convertible note and follow-on equity offering.
Analysts who cover SMCI expect revenue and earnings to increase by 58.4% and 41.8%, respectively, in fiscal 2025. For the outstanding growth expected in the next two years, I believe SMCI stock is a worthwhile buy, trading at 23 times forward 2025 earnings.
What’s the Wall Street Verdict on SMCI Stock?
Overall, Wall Street rates SMCI stock as a “moderate buy.” Eight of the 13 analysts who cover the stock rate it as a "strong buy," four suggest a "hold," and one recommends a "strong sell."
Recently, Barclays analyst George Wang, CFA, reiterated his "buy" rating for SMCI, with a $1,000 target price. Wells Fargo (WFC) analyst Aaron Rakers also maintained his "hold" rating and target price of $890.
Based on its average target price of $980.73, the stock has 26.5% upside potential over the next 12 months. Furthermore, the Street-high estimate of $1,500 suggests a 93.4% upside from current levels.
The increased emphasis on data center expansion, cloud computing, and AI-powered applications has created favorable market conditions for SMCI. As organizations invest more in AI, Super Micro's diverse product portfolio positions it well to capitalize on these trends. SMCI's CEO is "optimistic that AI growth will continue for many quarters if not many years to come.”
If revenue and earnings continue to rise at this rate, I believe SMCI will easily reach its high target price within the next 12 months.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
