Super Micro Computer (SMCI) is a topic of considerable debate on Wall Street. Following allegations of accounting missteps the previous year, an external committee did not find any wrongdoing. Consequently, the company engaged a new accounting firm and has since released all requisite financial statements in accordance with Nasdaq stock exchange and Securities and Exchange Commission guidelines.
Despite Super Micro’s tumultuous journey, its stock is now 50% higher than at the start of 2024, even though it had previously surged by over 300% in the past 15 months. This indicates that the stock might possess greater value than currently recognized, especially since it still bears the impact of prior accounting allegations.
Northland Securities has increased its price target for Super Micro Computer, often referred to as Supermicro, to $70 per share, which implies a 66% increase from the closing price on the previous Friday. Achieving such a gain would be significant for the stock, appealing to any investor looking for high-performing stocks in their portfolio.
Super Micro Computer’s performance is closely tied to the strength of Nvidia. The company is significantly benefiting from the AI boom by producing components for server racks that manage and cool GPUs. Despite a seemingly mundane function, these components are crucial for the construction of global artificial intelligence infrastructure.
Unlike many competitors, Supermicro’s distinct advantage lies in its direct liquid cooling (DLC) technology, which enables the cooling of GPUs using liquid instead of air. While initially more costly, this technology reportedly saves clients 40% on energy costs and occupies 80% less space, enabling closer placement of racks due to reduced airflow requirements.
A significant growth driver for Supermicro is Nvidia’s new GPU architecture, Blackwell. Supermicro’s DLC is specifically designed to accommodate Blackwell, and the company stands to gain directly if Nvidia’s Blackwell GPUs perform well and continue to spread.
With ongoing developments in AI infrastructure and cloud computing, Supermicro has significant growth potential, as evidenced currently.
In the second quarter of fiscal 2025, ending December 31, Supermicro reported $5.7 billion in sales, marking a 55% increase compared to the same period the previous year. The outlook for the third quarter remains consistent, with expected revenue between $5 billion and $6 billion, translating to about 43% growth. This growth trajectory is anticipated to continue. CEO Charles Liang estimates revenues of $23.5 billion to $25 billion for fiscal 2025 and $40 billion for fiscal 2026.
Despite the substantial opportunity, Supermicro’s stock remains undervalued. It is priced at 15.9 times trailing earnings and 14.6 times forward earnings estimates, positioning it as a potential bargain at current prices.
However, these valuations align closely with historical averages, as the market perceives limited differentiation of Supermicro from its competitors. Nonetheless, being the preferred supplier for data center infrastructure supporting Nvidia Blackwell GPUs sets the company apart.
Supermicro could be a strong investment opportunity and might be considered undervalued. It has the potential to regain a slight premium if it consistently delivers solid quarterly results and avoids further accounting controversies. While Northland Securities predicts a rise to $70, the possibility of such a leap could depend on multiple positive outcomes.
