March 25, 2024:

There were optimistic evaluations from Wall Street analysts that drove up the Super Micro Computer’s (SMCI) stock. Samik Chatterjee of JPMorgan started covering the company, suggesting a ‘buy’ rating with a price target of $1,150, indicating a probable 18% upside compared to the price at the Friday’s close. He projected the demand for AI, and hence Super Micro Computer’s growth, will endure.

Likewise, Northland analyst Nehal Chokshi increased his price target to $1,300 (a potential 34% upside) while keeping an ‘outperform’ rating on the stocks. Chokshi identified Supermicro as a dominant entity in the branded server market, and sees the potential for it to seize a 16% share in the massive $560 billion worth AI server market.

Given the close dependency of generative AI on data centers, the escalating upgrade cycles are promising, and this trend is expected to carry forward. Toni Sacconaghi of Bernstein foresees a remarkable 75% annual growth in the AI server market in the next three years.

Furthermore, Supermicro’s collaborations with leading AI chipmakers have allowed it to steal market shares from even larger competitors, ensuring priority access to popular processors.

The company’s stock has soared to breathtaking levels, registering more than 1,200% growth since the beginning of the preceding year, with a 276% increment in this year alone. Despite a steep rise in stock prices, the stocks are still attractive, priced at less than three times the sales projection for the coming year.

In response to the increased demand, the company’s reported heavy capital investment to boost production capacity. This strategy was clearly successful, with the second quarter of fiscal 2024 (ending Dec. 31) showing a 103% upswing in revenue and a 71% leap in earnings per share.