This Analyst Gave Super Micro Stock an Unexpected Price Target Hike

Super Micro Computer (SMCI) has been a standout in the AI-driven tech boom, capitalizing on surging demand for high-performance computing solutions. As a leading provider of advanced server technology, Super Micro has positioned itself at the forefront of artificial intelligence infrastructure, benefiting from the rapid expansion of AI applications and the growing need for energy-efficient, high-density computing.

Still, the company endured a tough 2024, as overly high expectations, allegations of accounting irregularities, and a delay in submitting its latest quarterly results significantly pressured its stock. Despite these hurdles, a surprising and bullish development has emerged: Loop Capital recently reiterated its bullish rating and raised its price target on SMCI stock - an unexpected vote of confidence that has caught the market’s attention. The firm cited the anticipated ramp-up of Nvidia’s (NVDA) next-generation Blackwell AI chips as a notable catalyst that could further accelerate Super Micro’s growth.

Does Loop Capital’s move make SMCI a compelling buy at current levels? Let’s find out.

About Super Micro Computer Stock

Super Micro Computer (SMCI) is a California-based company that specializes in the development and manufacturing of high-performance server and storage solutions based on modular and open architecture. Its solutions include complete server and storage systems, modular blade servers, workstations, networking devices, server sub-systems, and accompanying management and security software. SMCI’s market capitalization currently stands at $15.5 billion.

Shares of the artificial intelligence server maker have dropped 7.7% on a year-to-date basis. On Jan. 27, SMCI stock plunged nearly 13% and wiped out all of its YTD gains amid a global tech sector selloff, triggered by Chinese startup DeepSeek’s announcement that it had developed AI models comparable to those of American competitors, but using less expensive chips. 

Loop Capital Reiterates Bullish Rating on SMCI and Raises Price Target

On Jan. 23, Loop Capital reaffirmed its “Buy” rating on Super Micro Computer, partly due to Nvidia’s Blackwell ramp. The firm views SMCI as an “important company in an important space,” citing both special situation catalysts (i.e. getting its SEC filings current) and fundamental drivers such as the GB200 and GB300 ramp up heading into summer, while key customers gain momentum. Loop analyst Ananda Baruah also boosted its price target on the stock to $40 from $35.

Still, Baruah warned that SMCI “could experience a clunky 1HCY2025, at least until May/June when key Tier 2 customers begin getting GB200 allocation.” As a result, there is a possibility that reaching the firm’s price target might not be “a straight line,” according to the analyst. 

Meanwhile, Baruah noted that Super Micro Computer’s “two largest customers have huge plans for 2025, and we believe it is inevitable that SMCI benefits.” One example is CoreWeave, which plans to double its data center count to 60 in 2025, up from about 30 data centers at the end of 2024. “This is a big deal for SMCI as we get to 2HCY2025 and the GB200/300 ramp,” the analyst told investors in a research note. “It could also be good for SMCI for liquid cooling on Hopper if CoreWeave wants to smooth out some orders to 1HCY2025. As an aside, this is a material DC ramp for CoreWeave who put on just 3 DCs in 2023.”

Recent News for SMCI Stock

On Jan. 14, Super Micro presented the latest solutions for the retail industry in collaboration with Nvidia at the National Retail Federation annual show. The company’s innovative server, storage, and edge computing solutions improve retail operations, store security, and operational efficiency. “At NRF, Supermicro is excited to introduce retailers to AI’s transformative potential and to revolutionize the customer’s experience. Our systems here will help resolve day-to-day concerns and elevate the overall buying experience,” said Charles Liang, president and CEO of Super Micro. 

Innovation in both front-of-house and back-of-house use cases, including personalized shopping experiences, automated logistical processes, and shrinkage prevention, helps retailers draw customers to their stores and enhance their profitability. However, specialized hardware is required for retail AI solutions to deliver optimal results. SMCI boasts the industry’s most extensive portfolio of edge AI solutions, giving retail organizations the necessary tools to maximize the ROI of their AI-driven applications. At the NRF event, the company introduced its latest systems, which are engineered to provide top-tier performance at retail locations.

On Jan. 9, Super Micro announced the commencement of bulk shipments of its max-performance servers equipped with Intel (INTC) Xeon 6900 series processors with P-cores. The new systems incorporate advanced technologies with architectures specifically optimized for the most demanding high-performance workloads, including large-scale AI, cluster-scale HPC, and environments requiring a high number of GPUs, such as collaborative design and media distribution.

“The systems now shipping in volume promise to unlock new capabilities and levels of performance for our customers around the world, featuring low latency, maximum I/O expansion providing high throughput with 256 performance cores per system, 12 memory channels per CPU with MRDIMM support, and high-performance EDSFF storage options,” said Liang.

How Did SMCI Perform in FQ1?

Super Micro Computer reported its preliminary fiscal first-quarter results on Nov. 5. Its quarterly revenue surged more than 180% year-over-year to approximately $6 billion. This growth was primarily driven by the adoption of AI technologies and the deployment of Direct Liquid-Cooled (DLC) AI superclusters. Management noted that it was one of the strongest first quarters in the company’s history. The expected adjusted EPS of around $0.75 is about twice as high as that of the same quarter last year. Analysts had projected the company to earn $0.74 per share with revenue of $6.79 billion. Still, the combination of substantial revenue growth and strong EPS expansion presents a highly compelling case.

Super Micro’s non-GAAP gross margin reached approximately 13.3%, up from 11.3% in the previous quarter, driven by product and customer mix, reduced costs, and improved manufacturing efficiencies on DLC AI GPU clusters. Despite modest sequential improvements, investors remained concerned about the company’s margins, which remain substantially lower than those of AI leaders like Nvidia and Advanced Micro Devices (AMD). However, it’s important to note that SMCI’s operating margin has not surged despite aggressive revenue growth due to significant investments in R&D and the recruitment of top talent. This underscores management’s long-term focus on creating value for shareholders.

Management indicated that cash and cash equivalents as of the reported date are expected to be around $2.1 billion. This is nearly equivalent to a total debt of $2.3 billion, indicating that the company’s balance sheet is solid enough to support its further growth and innovation.

Looking ahead, Super Micro projected second-quarter net sales to range between $5.5 billion and $6.1 billion, with adjusted EPS anticipated to be between $0.56 and $0.65. Notably, the company is likely to expand its share of the DLC market, as management said that 15%-30% of new data centers are expected to use liquid-cooled infrastructure within the next 12 months. With that, SMCI is well-positioned to capitalize aggressively on AI-driven tailwinds.

Major Catalyst Ahead for SMCI

We are now roughly one month away from Feb. 25, a crucial date for SMCI. In early December, Super Micro was granted an extension under Nasdaq rule 5250(c)(1), giving the company until Feb. 25 to file its annual report via a Form 10-K for the fiscal year 2024 and its 10-Q quarterly report for the period ending Sept. 30, 2024, in order to maintain its listing on the Nasdaq. Management expressed confidence that the company will “file all the required reports by Feb. 25, 2025.” However, investors are likely still wondering whether Super Micro will be able to meet this filing deadline.

With that, adopting a wait-and-see approach at this time would be prudent. If SMCI submits its delayed financials by the February deadline, it will likely spark a relief rally, potentially intensified by a short squeeze. This could propel the stock to retest its early December high. At the same time, if the company fails to meet the final deadline, the stock will likely drop to its November low of around $20 or possibly fall even further.

SMCI Valuation and Analysts’ Estimates

Analysts tracking the company project a 7.96% year-over-year increase in its adjusted EPS to $2.17 for fiscal 2025. Also, they expect SMCI’s top line to advance 63.91% year-over-year to $24.49 billion.

From a valuation perspective, SMCI stock remains attractively priced. The company’s forward EV/EBITDA and P/E (Non-GAAP) ratios are 7.05x and 10.14x, respectively, representing a discount of over 55% compared to the sector median levels. There aren’t many companies with AI exposure trading at such a significant discount to the sector. However, it’s important to note that SMCI’s discount is due to delisting risks that affect investor confidence, which is why I believe adopting a wait-and-see stance is the best strategy at the moment.

What Do Analysts Expect for SMCI Stock?

Super Micro Computer stock has a consensus “Hold” rating. Out of the 13 analysts providing recommendations for the stock, two rate it as a “Strong Buy,” one advises a “Moderate Buy,” eight recommend holding, and the remaining two give a “Strong Sell” rating. The mean target price for SMCI stock is $49.56, indicating significant upside potential of 77% from current levels.