Sunday, April 21, 2024

Super Micro Extends Epic Rally as AI Server Demand Fuels Growth

HomeStock-MarketSuper Micro Extends Epic Rally as AI Server Demand Fuels Growth

San Jose, CA – Super Micro Computer Inc. (SMCI) shares continued their meteoric rise this week, extending a rally that has seen the stock gain over 900% in the last year. The server technology company has become a darling for investors seeking exposure to artificial intelligence, as demand for its specialized hardware surges.

Super Micro designs, engineers and manufactures server and storage systems tailor-made to power cutting-edge AI and analytics applications. Its ability to customize systems to client specifications and quickly incorporate the latest components like GPUs gives it a key advantage in the market.

This first-mover status in AI servers has translated to explosive growth amid a boom in spending on AI infrastructure. Revenue jumped over 60% last quarter, blowing past estimates. Super Micro raised its full-year guidance on expectations of robust ongoing demand.

“Super Micro’s AI-fueled momentum has been remarkable,” said Wells Fargo analyst Aaron Rakers. “Its engineering-first differentiation should support a valuation re-rate.”

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The company’s preliminary results revealed that over 50% of quarterly revenue now comes from servers enhanced with accelerators like GPUs from Nvidia and AMD. Super Micro is an early launch partner for these chipmakers, receiving advance access to new products.

“Being first to market with the latest technology is crucial in the rapidly evolving AI space,” Rakers noted.

Bank of America sees a vast runway for growth ahead, starting Super Micro with a buy rating and $1040 price target.

“We expect the AI server market to grow 50% annually over the next three years,” said analyst Ruplu Bhattacharya. “Super Micro’s revenue should outpace this, driving further market share gains.”

Wall Street has scrambled to get bullish on the stock, boosting 2025 earnings estimates over 50% in the past month. The rally has made Super Micro larger than semiconductor stalwarts like Microchip Technology and lifted shares well over $1000.

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Can the Rally Continue?

Such a parabolic rise inevitably raises questions around sustainability. Wells Fargo cautions the stock may be getting overheated after gaining over 250% this year alone. On a fundamental basis though, Super Micro retains a reasonable valuation given its standout growth metrics.

Shares trade at a forward P/E of 34, largely in line with AI leaders Nvidia and Microsoft. This seems justified if the company can meet newly elevated profit forecasts.

“I think there’s still upside from current levels if Super Micro delivers on the promise,” said investment manager Will Hunt. “This is a totally unique company exposed to the AI mega-trend. It warrants a premium.”

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Of course, executing on expectations is no easy task, especially amid a challenging macro environment. Any global recession would likely crimp enterprise IT budgets and raise risks for Super Micro.

Still, with AI adoption showing little signs of slowing, the company looks poised to continue outpacing. Its custom engineering focus gives Super Micro an edge in addressing client needs in this rapidly evolving space.

“They are not a box mover competing on price,” Hunt explained. “Rather, Super Micro is entrenched with customers through proprietary IP and integration work – that stickiness is invaluable.”

If the company can sustain momentum and meet its boosted guidance, shares may well have further to run. But after such a blistering rally, Super Micro stock threatens to be volatile even if growth trends remain firmly intact.

Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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