Super Micro Computer (NASDAQ: SMCI) investors are sitting on solid gains of 176% in 2024, as shares of the company that’s known for manufacturing server and storage products have continued their rampant rise this year following an impressive performance in 2023, when they shot up a whopping 246%. What’s more, Super Micro stock is up an impressive 855% since the beginning of 2023.
Investors may be wondering if they should be buying this high-flying tech stock following such stunning gains in the past year and a half. However, a closer look at the stock’s recent performance points toward a sharp pullback, with shares of Super Micro Computer down 34% from the 52-week highs they hit on March 8.
Should investors use this drop to buy more shares of Super Micro in anticipation of more upside, or is it too late to buy this stock? Let’s find out.
Super Micro Computer stock is expected to deliver more upside
Super Micro carries a 12-month median price target of $1,030, per a consensus of 20 analysts covering the stock, which points toward a 31% upside from current levels. Meanwhile, the Street-high price target of $1,500 indicates that Super Micro stock could jump another 91% from where it is right now.
What’s more, 70% of the analysts covering Super Micro stock rate it as a buy. That’s not surprising, considering the impressive pace at which the company has been growing, as well as the tremendous growth opportunity ahead of it in the server market, especially in artificial intelligence (AI) servers.
Super Micro’s revenue in the first nine months of its ongoing fiscal year 2024 increased 95% year over year to $9.63 billion. Its non-GAAP (generally accepted accounting principles) earnings during the same period shot up by 90% to $15.77 per share. This terrific growth in Super Micro’s top and bottom lines can be attributed to the need for mounting AI-optimized graphics processing units (GPUs) in server systems.
On its recent earnings conference call, management pointed out that Super Micro’s growth is “led by AI GPU platforms, which represented more than 50% of revenues with AI GPU customers in both the enterprise and cloud service provider markets.” It is also worth noting that the demand for Super Micro’s server systems is so strong that the company is finding it difficult to make enough of them.
The good part is that Super Micro is witnessing an improvement in supply chain conditions. At the same time, Super Micro is landing more customers for its air-cooled and liquid-cooled server systems. Again, that’s not surprising, as the company has been quick to launch server systems optimized for popular and upcoming AI GPUs.
For instance, Super Micro announced servers for Nvidia‘s next-generation Blackwell GPUs on the very day that Nvidia unveiled its new chip architecture. Such quick product development moves explain why Super Micro will reportedly produce a quarter of Nvidia’s Blackwell server systems. Moreover, the company’s focus on being quick to the market with new products is expected to help it gain a bigger share of the lucrative server market.
JPMorgan initiated coverage on Super Micro in March this year with an overweight rating. Analyst Samik Chatterjee estimates that Super Micro could control 10% to 15% of the AI server market in fiscal 2027. As a result, the company’s revenue could increase at an annual rate of 43% between fiscal 2023 and fiscal 2027. Based on JPMorgan’s growth estimate, Super Micro’s fiscal 2027 revenue could hit almost $30 billion (using its fiscal 2023 revenue of $7.1 billion as the base).
Super Micro’s revenue forecast of $14.9 billion for the ongoing fiscal year 2024 suggests that its top line could jump 110% from the previous year at the midpoint. Considering that the AI server market alone is expected to generate $150 billion in revenue in 2027, according to Foxconn, and Super Micro gets half of its revenue from this segment, there is a good chance that it could indeed hit JPMorgan’s revenue estimate.
A closer look at the chart indicates that Super Micro’s top line is set to inch closer to the $30 billion mark over the next couple of fiscal years.
Even better, this robust revenue growth is set to supercharge the company’s bottom line as well from the ongoing fiscal year’s estimate of $23.78 per share.
In all, there is a good chance that Super Micro stock could start soaring once again following its recent pullback, as the company is sitting on solid catalysts. But is the stock valued attractively enough right now for investors to buy it?
It may not be too late to buy the stock
Even though Super Micro stock delivered eye-popping gains in the past year, it trades at a relatively attractive 43 times trailing earnings. That multiple is in line with the U.S. technology sector’s price-to-earnings ratio of 43. What’s more, Super Micro’s forward earnings multiple of 21 points toward a big jump in its bottom line.
Additionally, Super Micro stock is undervalued with respect to the growth that it is anticipated to deliver. This is evident from the company’s price/earnings-to-growth ratio (PEG ratio), a multiple that tells us how expensive a stock is in comparison to its growth rate.
A stock with a PEG ratio of less than 1 is considered undervalued. So, it isn’t too late for investors to buy this AI stock yet, as Super Micro could continue soaring thanks to these catalysts discussed. More importantly, its valuation indicates that it is still worth buying.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Nvidia. The Motley Fool has a disclosure policy.
Is It Too Late to Buy Super Micro Computer Stock? was originally published by The Motley Fool
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