Super Micro Computer (NASDAQ: SMCI) has sparked debate among investors on Wall Street. While the company faced accusations of accounting errors last year, an independent review cleared them of any misconduct, prompting the hiring of a new accounting firm which subsequently released all required financial statements to meet Nasdaq and Securities and Exchange Commission standards.
Despite being a tumultuous journey for investors, the stock has only risen about 50% since the start of 2024, having previously surged more than 300% in the past 15 months. This suggests there may be untapped value in the stock, particularly given its lingering reputation from the earlier accounting issues.
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Northland Securities has raised its price target for Super Micro Computer (often referred to as Supermicro) to $70 per share, suggesting a 66% potential upside based on last Friday’s closing price. Such an appreciation would be significant for investors seeking high-performing stocks in their portfolios.
Super Micro Computer’s Business Growth Linked to Nvidia’s Performance
Supermicro stands to gain substantially from the surge in AI technologies, as it manufactures components for data center racks that accommodate and cool GPUs. While this aspect might seem mundane, it plays a crucial role in the global AI infrastructure being developed.
Unlike many competitors, Supermicro distinguishes itself with its direct liquid cooling (DLC) technology, which efficiently cools GPUs—known for their heat production—using liquid instead of air. While this could require a higher initial investment, management claims it saves clients 40% on energy costs and uses 80% less space, allowing for tighter rack placements due to reduced air cooling needs.
Strong Growth Projections for Supermicro
For the second quarter of fiscal 2025 (ending December 31), Supermicro reported $5.7 billion in sales, marking a 55% increase year-over-year. The third quarter also shows promise, with revenue anticipated between $5 billion and $6 billion, signifying approximately 43% growth. CEO Charles Liang has forecasted revenues of $23.5 billion to $25 billion for fiscal 2025 and $40 billion for fiscal 2026.
Despite these encouraging growth prospects, the stock appears undervalued, trading at 15.9 times trailing earnings and 14.6 times forward earnings estimates. These valuations align with historical averages, yet many in the market perceive a lack of unique advantages for Supermicro compared to its rivals. However, its status as the preferred supplier of infrastructure for Nvidia’s Blackwell GPUs could change this narrative.
Supermicro presents a potentially valuable buying opportunity at this price point, with the chance to regain premium valuations if it continues to report solid results and sidesteps further accounting controversies. Whether it can reach the $70 mark suggested by Northland Securities remains uncertain, but a substantial appreciation seems conceivable.
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