Super Micro Computer: The Rising Star in AI Infrastructure

Forget Nvidia: 1 Stock-Split AI Stock to Buy Before It Soars 195%, According to Certain Wall Street Analysts | The Motley Fool

Two Wall Street analysts think Super Micro Computer's stock could nearly triple in value. Nvidia has led the S&P 500 (^GSPC -0.29%) higher this year amid frenetic interest in artificial intelligence (AI). The stock has surged 136% since January, and Wall Street analysts forecast median upside of 30% from the current share price of $115. But betting on a single AI stock is a bad strategy. Consultancy PwC estimates AI will add more than $15 trillion to the global economy by 2030, and numerous companies will benefit as the technology diffuses through different industries. So, rather than focusing solely on Nvidia, investors should forget the chipmaker (temporarily) and consider server maker Super Micro Computer (SMCI -0.57%). Super Micro has a 10-for-1 stock split scheduled for late September, such that shares will begin trading on a split-adjusted basis on Oct. 1. Two analysts, Nehal Chokshi at Northland Securities and Hans Mosesmann at Rosenblatt Securities, value Super Micro at $1,300 per share, implying 195% upside from its current share price of $440. Here's what investors should know. Super Micro develops accelerated computing platforms, including storage systems and servers, for enterprise and cloud data centers. Its portfolio includes individual devices, and full server racks optimized for workloads like data analytics and artificial intelligence (AI). What sets Super Micro apart are its internal manufacturing capabilities and its modular approach to product development. Specifically, the company uses electronic "building blocks" that can quickly be assembled into a broad range of servers. It also handles most assembly and testing at internal facilities to enable rapid prototyping and product releases. That usually allows Super Micro to bring new technologies to market two to six months before its competitors, according to CEO Charles Liang. Hans Mosesmann highlighted that advantage in a note earlier this year. "Super Micro has developed a model that is very, very quick to market. They usually have the widest portfolio of products when a new product comes out from Nvidia or AMD or Intel." That advantage has helped Super Micro secure a leadership position in the AI server market. That puts the company in an enviable position. Statista estimates AI server sales will grow at 30% annually through 2033 as businesses build out their AI infrastructure. If Super Micro can maintain its time-to-market advantage, its revenue and earnings could increase at a similar pace over the next decade. Super Micro reported mixed financial results in the fourth quarter of fiscal 2024 (ended June 2024). Revenue increased 144% to $5.3 billion, but gross margin contracted almost six percentage points to 11.2% and non-GAAP earnings increased 78% to $6.25 per diluted share. Investors interpreted weak margins has proof of increased competition in the AI server market. However, management attributed the issue to costs associated with direct liquid cooling (DLC) components. Importantly, the company expects gross margin to normalize between 14% and 17% before the end of fiscal 2025 as DLC solutions ship in higher volume. Moreover, investments in DLC solutions could strengthen Super Micro's position in the AI server market. Liquid cooling is more efficient than traditional air cooling, and it will become increasingly important as AI servers become more powerful. Even so, the stock tumbled 20% following the fourth-quarter report due to concerns about contracting margins. And shares moved even lower in late August when short-seller Hindenburg Research targeted Super Micro with allegations of "glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures and customer issues." Shortly thereafter, Super Micro delayed filing its Form 10-K and several analysts downgraded the stock due to uncertainty arising from the situation. However, CEO Charles Liang dismissed the Hindenburg report as containing "false or inaccurate statements about our company including misleading presentations of information that we have previous shared publicly." He also wrote, "We don't anticipate any material changes in our fourth quarter or fiscal year 2024 financial results. This is good news. I continue to have strong confidence in our finance and internal teams." Investors should stay informed on the situation. In the past, Hindenburg has uncovered serious wrongdoing at certain companies, but other times its reports have ultimately been inconsequential. Either way, the allegations make the stock risky right now, despite being down 63% from its high. Wall Street expects Super Micro's adjusted earnings to grow at 41% annually through fiscal 2026 (ends June 2026). That makes the current valuation of 20 times earnings look cheap. Those figures give a PEG ratio of 0.5, a material discount to the three-year average of 0.9. But Super Micro stock also looks cheap compared to rival server maker Dell Technologies, which has a PEG ratio 1.7. Personally, I think risk tolerant investors should consider buying a small position in Super Micro today. The stock could rebound in a big way if the short report amounts to nothing and the company's gross margin expands in the coming quarters. That said, shares could decline much further if either of those situations go the wrong way.

Super Micro Stock's Newest Bull Says It's 'The Coolest Kid in AI Town'

Super Micro's stock has drawn skepticism in recent weeks from other analysts, including those at JP Morgan, though the share remain up substantially year-to-date. Super Micro Computer (SMCI) shares are trading for less than half of their 2024 high. The server maker has a new bull that sees a recovery ahead. Analysts at Needham initiated coverage of Super Micro with a "buy" rating and price target of $600, a premium of more than 36% to Tuesday's close. The company, which Needham called "the coolest kid in AI town," is involved in the deployment of some of the world's largest AI clusters and entered fiscal 2025 with record order backlog. Needham cited Super Micro's position as a first mover in rack-level liquid cooling systems, an important technological component of reducing the electricity cost of data centers. The company has expanded its liquid cooling rack manufacturing capacity in Silicon Valley and Taiwan, and will launch production in Malaysia in November. Super Micro delayed the release of its annual report last month, which JP Morgan said could also cause an "overhang," recommending that new investors "remain on the sidelines" until the uncertainty is resolved. Shares of Super Micro are up more than 50% this year but have lost about half of their value over the past three months in part due to disappointing fiscal fourth-quarter earnings.

Super Micro Poised for Expansion as Gross Margin Concerns Ease, Internal Control Risks Priced In: Analyst - Super Micro Computer (NASDAQ:SMCI)

Super Micro expands manufacturing in Silicon Valley, Taiwan, and Malaysia, expecting fiscal 2025 revenue to hit $26B-$30B. Needham analyst Quinn Bolton initiated coverage on Super Micro Computer Inc SMCI with a Buy rating and a price target of $600. Bolton noted Super Micro as a "show me" story on its margin recovery, justifying its multiple being at a slight premium to its hardware rivals. The analyst noted that the stock price reflects most of the risk associated with the Board's review of internal controls. Also Read: NVIDIA, Micron, SMCI Stocks Are Down Monday: What's Going On? Bolton noted Super Micro as a significant beneficiary of growing investment in AI infrastructure and forecasts a revenue CAGR of over 55% from fiscal 2021 to fiscal 2026. The analyst said Super Micro is currently involved in deploying some of the world's most significant AI clusters and entered fiscal 2025 with a record-high backlog. Bolton noted the bear case gross margin trending towards the single digits is too pessimistic despite his conservative margin trajectory, citing pricing competitiveness for larger liquid-cooled AI deals. The analyst flagged that Super Micro, a first mover in rack-level liquid cooling solutions, has already shipped liquid-cooled racks to a handful of customers and is experiencing a rapid acceleration in customer requests for liquid-cooled solutions. He noted liquid cooling as an opportunity for the company to increase its market share further. Super Micro has been aggressively expanding its manufacturing capacity, including its DLC liquid cooling rack capacity in Silicon Valley and Taiwan. It will start production at its Malaysia campus in November, which will double manufacturing capacity in the long term, Bolton highlighted. As per the analyst, these capacity expansion efforts and growth at emerging CSPs and sovereigns should drive fiscal 2025 revenue to $26 billion-$30 billion (+87% Y/Y). Super Micro stock is up 80% in the last 12 months despite losing 30% in the previous 30 days due to the Hindenberg short report. Investors can gain exposure to Super Micro through iShares Future AI & Tech ETF ARTY and iShares U.S. Digital Infrastructure and Real Estate ETF IDGT. Price Action: SMCI stock is up 2.30% at $449.41 at the last check on Wednesday. Photo via Company Market News and Data brought to you by Benzinga APIs