Artificial Intelligence

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SMCI - >>> 1 Wall Street Analyst Thinks Super Micro Computer Stock Is Going to $1,040. Is It a Buy?


by Howard Smith

Motley Fool

February 18, 2024


https://finance.yahoo.com/news/1-wall-street-analyst-thinks-173000319.html


Data center systems provider Super Micro Computer (NASDAQ: SMCI) has been a darling of Wall Street lately. Its shares have soared 950% over the past year and have been on a parabolic move recently.

The stock has tripled in just the last month, but one Wall Street analyst thinks Supermicro, as it is known, still has more room to run. Bank of America Securities analyst Ruplu Bhattacharya began coverage on the supplier of accelerated computing server systems with a buy rating and a $1,040 price target. That would represent a jump of 18% over Wednesday's closing price, even after Supermicro's torrid run.

AI has legs

Companies in virtually every sector are leveraging the power of artificial intelligence (AI). The biggest beneficiary in the stock market thus far has been semiconductor chipmaker Nvidia. In that company's third quarter, overall revenue more than tripled from a year ago and soared 34% sequentially from the prior quarter. That jump came mainly from growth in Nvidia's data center business thanks to customers craving its chips that power AI applications.

But businesses don't just need the chips, they need the server infrastructure that keeps the full AI machine running. And while Nvidia's revenue tripled year over year, its earnings per share rocketed by more than 12-fold. That's the earnings power that Bhattacharya sees helping boost Supermicro too.

In a client note, he wrote: "We think this provider of server and storage solutions will be a beneficiary of AI-driven demand growth ... We believe the market for AI servers is much larger than is factored in [Wall] Street models."

Is it too late to buy Supermicro?

Bhattacharya's price target could even be conservative. If the market for AI servers grows at a 50% annual rate over the next several years as Bhattacharya thinks, Supermicro has plenty more sales and earnings growth ahead.

Yet the stock is still not overly expensive. It has a price-to-sales ratio of about 6 compared to 40 for Nvidia. And earnings could soar as they have for Nvidia. The analyst's call looks very achievable.

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