Super Micro Computer Inc. SMCI has benefited on the back of robust demand for servers powered by high-end generative artificial intelligence (AI) chipsets. SMCI designs, develops, manufactures and sells energy-efficient, application-optimized server solutions based on the x86 architecture.
An astonishing rise in demand for high-performance rack servers boosted SMCI’s top and bottom lines. The stock price of SMCI has soared more than 98% this year.
In order to support aggressive workloads, data centers are aggressively demanding high-density rack space and direct-to-chip liquid cooling. Super Micro Computer makes servers for enterprise, cloud, AI, metaverse and 5G telco/edge IT infrastructure. Super Micro Computer is positioned as a leading provider of one-stop-shop, high-performance rack servers capable of powering advanced AI applications.
Robust Clientele of SMCI
Some of the largest customers of SMCI include NVIDIA Corp. NVDA, Intel Corp. INTC and Advanced Micro Devices Inc. AMD. The company is a big beneficiary of the booming AI-empowered hardware market. Per Skyquest, the AI-enabled hardware market is well-positioned to surpass $84.9 billion by 2031, at a compound annual growth rate (CAGR) of 15.5% from 2024 to 2031.
SMCI currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Huge Upside Potential for SMCI
Super Micro Computer recorded its all-time high price at $1,229.0 on March 8. After that, the stock price tumbled more than 50%. Despite the meltdown, the stock price has soared nearly 98.5% year to date. The average price target of brokerage firms for the stock represents an increase of 50.4% from the last closing price of $562.51. The brokerage target price is currently in the range of $325-$1,500.
The chart below shows the price performance of SMCI year to date.
Image Source: Zacks Investment Research
SMCI’s Product Innovation
SMCI’s solutions include a range of rack mount and blade server systems, as well as components. SMCI’s Server Building Block Solutions provides benefits across many environments, including data center deployment, high-performance computing, high-end workstations, storage networks and standalone server installations.
In the future, Super Micro Computer is expected to generate strong sales supported by its plans to bring a new manufacturing facility in Malaysia online later this year. The growing demand for its DLC servers is another positive. SMCI expects its products to reduce the energy costs of data center operators by as much as 40%, while improving computing performance.
Attractive Valuation of SMCI
Super Micro Computer is currently trading at an attractive valuation compared to its peers. The stock has a forward price/earnings (P/E) of 18.30X, in line with the industry’s P/E but below the S&P 500’s P/E of 19.46X. It has a price/sale (P/S) of 2.30X, compared with the industry’s P/S of 2.49X and the S&P 500’s P/S of 2.90X. SMCI has a price/book (P/B) of 6.27X, lower than the industry’s P/B of 10.30X but higher than the S&P 500’s P/B of 3.68X.
Moreover, Super Micro Computer has generated profits competently since it has a return on equity (ROE) of 30.57%, compared with the industry’s ROE of 15.34% and the S&P 500’s ROE of 16.52%. Any ROE of more than 20% is generally considered very strong.
SMCI has an expected revenue and earnings growth rate of 87.5% and 51.65%, respectively, for the current year (ending June 2025). The Zacks Consensus Estimate for current-year earnings remained the same in the last seven days.
The chart below shows the Price, Consensus & Surprise for SMCI
Image Source: Zacks Investment Research
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