Super Micro Computer (SMCI 8.89%) stock has rocketed 202% year to date, and that follows a similar run in 2023. Barclays analyst George Wang recently raised the share price target to $961 while maintaining his buy rating on the stock. That new target represents an upside of 21% from the stock's Feb. 13 closing price.
The problem is that Supermicro (as it is more commonly known) stock is running up fast, and it could hit the analysts' target in a matter of days. Optimism about the IT rack solution provider's accelerating growth has the stock up about 8% since the analyst's updated call.
The most important question is can long-term investors reasonably expect the stock to deliver returns from these lofty share prices?
Spending on data center infrastructure is exploding
Supermicro is selling more rack systems to data centers as the supply of artificial intelligence (AI) chips improves, which caused revenue to more than double in the last quarter.
The consensus analyst estimate expects Supermicro's adjusted earnings to increase by 84% to $21.83 for the June-ending fiscal year. While the stock looks expensive on a trailing earnings basis, its valuation using forward earnings estimates suggests the stock has more upside.
A leading data center supplier worth owning for the long haul
The stock's forward price-to-earnings (P/E) ratio is 39 based on this year's earnings estimate. Using next year's forecast, the forward P/E drops to 30. This is more than reasonable for a company growing at such high rates.
Given the long-term tailwinds impacting data center and AI spending, Supermicro's valuation could justify the stock hitting the $961 price target in the near term and likely more highs over the next few years.
