Super-microcomputer (NASDAQ:SMCI) Investors can look forward to solid gains of 176% in 2024 as shares of the company known for manufacturing server and storage products have continued their rapid rise this year after putting in an impressive performance in 2023 when they shot up a whopping 246%. Moreover, Super Micro stock has risen an impressive 855% since the start of 2023.
Investors may be wondering whether they should buy this high-flying technology stock after such stunning gains over the past year and a half. But a closer look at the stock’s recent performance suggests a sharp decline. Super Micro Computer shares have fallen 34% since their 52-week high on March 8.
Should investors use this decline to buy more shares of Super Micro in anticipation of further gains, or is it too late to buy this stock? Let’s find out.
Super Micro Computer shares are expected to continue to rise
According to a consensus of 20 analysts covering the stock, the median price target for Super Micro over the next 12 months is $1,030, suggesting a 31% upside potential from current levels. The $1,500 price target, considered the high on Wall Street, suggests Super Micro stock could rise another 91% from its current level.
In addition, 70% of analysts covering Super Micro stock rate it as a buy. This is not surprising considering the impressive pace at which the company has grown, as well as the tremendous growth opportunities that lie ahead of it in the server market, especially in artificial intelligence (AI) servers.
Super Micro’s revenue increased 95% year-on-year to $9.63 billion in the first nine months of its current fiscal year 2024. Non-GAAP (generally accepted accounting principles) earnings increased 90% to $15.77 per share in the same period. This tremendous growth in Super Micro’s revenue and earnings is due to the need to install AI-optimized graphics processing units (GPUs) in server systems.
On the recent earnings call, management pointed out that Super Micro’s growth is “led by AI GPU platforms, which account for more than 50% of revenue from AI GPU customers in both the enterprise and cloud service provider markets.” It’s also worth noting that demand for Super Micro’s server systems is so strong that the company is having a hard time manufacturing enough of them.
The good news is that Super Micro is seeing an improvement in supply chain conditions. At the same time, Super Micro is gaining more customers for its air- and liquid-cooled server systems. This is also not surprising, as the company has been quick to launch server systems optimized for popular and upcoming AI GPUs.
Super Micro Server announced for NVIDIAThe next generation of Blackwell GPUs was unveiled on the very same day that Nvidia unveiled its new chip architecture. Such rapid product development moves explain why Super Micro will reportedly produce a quarter of Nvidia’s Blackwell server systems. In addition, the company’s focus on getting to market quickly with new products is expected to help it capture a larger share of the lucrative server market.
JPMorgan Chase & Co. began coverage on Super Micro with an Overweight rating in March this year. 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 grow 43% annually between fiscal 2023 and fiscal 2027. Based on JPMorgan’s growth estimate, Super Micro’s revenue could reach nearly $30 billion in fiscal 2027 (using fiscal 2023 revenue of $7.1 billion as a baseline).
Super Micro’s revenue forecast of $14.9 billion for the current fiscal year 2024 suggests that revenue could grow by 110% year-over-year on average. Considering that the AI server market alone is expected to generate $150 billion in revenue in 2027, according to Foxconn, and Super Micro generates half of its revenue from this segment, there’s a good chance the company could actually meet JPMorgan’s revenue estimate.
A closer look at the chart shows that Super Micro’s revenue will approach the $30 billion mark in the next few fiscal years.
Even better, this robust revenue growth will also significantly increase the company’s bottom line, over the current fiscal year estimate of $23.78 per share.
Overall, there’s a good chance that Super Micro stock will bounce back after its recent decline as the company sits on solid growth drivers. But is the stock currently valued attractively enough for investors to buy it?
It may not be too late to buy the stock
Despite delivering stunning gains over the past year, Super Micro stock trades at a relatively attractive 43 times earnings. That multiple is in line with the U.S. technology sector’s price-to-earnings ratio of 43. Moreover, Super Micro’s forward earnings multiple of 21 points to a big jump in earnings.
Furthermore, Super Micro’s stock is undervalued relative to its expected growth, as evidenced by the company’s price-to-earnings-growth (PEG) ratio, a multiple that tells us how expensive a stock is compared to its growth rate.
A stock with a PEG ratio of less than 1 is considered undervalued, so it’s not too late for investors to buy this AI stock as Super Micro could continue to rise thanks to the catalysts discussed. And more importantly, the valuation suggests it’s still worth buying.
Should you invest $1,000 in Super Micro Computer now?
Before you buy Super Micro Computer stock, consider the following:
The Motley Fool Stock Advisor The analyst team has just published what they believe to be The 10 best stocks for investors to buy now… and Super Micro Computer wasn’t one of them. The 10 stocks that made the cut could deliver huge returns in the years to come.
Consider when NVIDIA created this list on April 15, 2005… if you had invested $1,000 at the time of our recommendation, You would have $713,416!*
Stock Advisor offers investors an easy-to-understand plan for success, including instructions on how to build a portfolio, regular updates from analysts, and two new stock recommendations per month. The Stock Advisor Service has more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of June 3, 2024
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Harsh Chauhan does not own any stocks mentioned. The Motley Fool owns 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