Super Micro Computer (SMCI 8.89%), also known as Supermicro, continued to gain ground on Wednesday after a brief pause. The stock was up by as much as 7.2% in morning trading, and as of 11:35 a.m. ET, it was still up by 4.2%.
The catalyst that sent the artificial intelligence (AI) server maker higher Wednesday was (more) rosy coverage from a Wall Street analyst.
A Street-high price target
The latest bullish commentary came courtesy of Argus Research analyst Jim Kelleher, who initiated coverage on Supermicro with a buy rating and a Street-high price target of $1,350 per share. This suggests potential upside of 24% compared to Tuesday's closing price.
The analyst noted Supermicro's position as a leading provider of computer and server solutions for generative AI. Kelleher also reminded investors that Supermicro provides GPU-based systems that cater to the rigorous demands of deep learning and high-performance computing, among other applications -- specialties that will continue to bolster its fortunes. As a result, he foresees "multiple years of strong top-line growth, margin expansion, and [earnings per share] acceleration."
Accelerating demand
Argus isn't the only firm that's bullish on Supermicro. Bernstein analyst Toni Sacconaghi suggests that demand in the AI server market will only increase from here, growing at a compound annual rate of 75% over the coming three years. Sacconaghi called the coming build-out of AI servers "unprecedented."
Supermicro stock has been on a tear over the past year, rallying by more than 1,000%, and it's up more than 300% in 2024 alone. Yet despite that meteoric rise, the stock is still trading at a remarkably affordable valuation of just 3 times next year's expected sales.
It's unlikely that Supermicro stock will remain cheap for long, particularly given its triple-digit percentage growth and the accelerating demand for AI. For those reasons and more, Supermicro remains a buy.
