Investors have been enamored with Super Micro Computer (SMCI 8.89%) recently. The artificial intelligence (AI) server and computer systems provider's share prices have rocketed higher by more than 293% just in 2024.
But analysts at investment research firm Argus think there's still time for investors to make money buying Supermicro stock now. Argus director of research Jim Kelleher and his team initiated coverage of Supermicro, as it is more commonly called, with a buy rating and a stock price target of $1,350. Based on the recent share price around $1,118, that would represent a 21% upside over the next 12 months.
All about AI demand
Kelleher and his team highlighted Supermicro's accelerating sales and earnings growth as the catalysts that can keep the stock moving higher. That growth is coming from explosive demand from many different types of businesses for server and computer solutions used for greater computing power needed for AI applications.
Generative AI, in particular, requires the GPU (graphic processing unit)-based systems that Supermicro provides. In his note to clients, the analyst wrote, "Super Micro has been growing earnings at an average annual rate of 53% in recent years, while the Tech industry earnings are growing at low double-digit percentages."
Supermicro itself has recently taken advantage of its strengthening position in the market. It just raised over $1.7 billion in fresh capital from newly issued convertible notes that include a zero interest rate. However, shareholders will be diluted in the future in the likely event those bonds are converted to common stock.
Another risk for investors is the jump in value Supermicro stock has already experienced. But Kelleher addressed that as well, writing, "Although the SMCI shares are not inexpensive, we believe prospects for near-term and long-term growth justify investment in the shares at current levels."
