Super Micro Computer (SMCI 0.50%) has been on an incredible run over the last year, and it's attracting lots of attention on Wall Street. On Monday, Goldman Sachs analysts published a note initiating coverage on Supermicro. The investment firm assigned a "neutral" rating on the stock, indicating that it does not recommend buying or selling shares right now.
Goldman's analysts also put a one-year price target of $941 per share on the stock. With the artificial intelligence (AI) stock priced at roughly $1,140 per share, that would imply potential downside of 17% over the next year. Has Supermicro stock become too risky?
NASDAQ: SMCI
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Can Supermicro stock keep rising or is it time to sell?
In Goldman's note on Supermicro, the analysts indicate that the massive run-up for the server specialist's valuation has been warranted. The analysts pointed to the company's strengths in the high-performance server market and status as an "AI winner" with valuable business relationships as legitimate catalysts for its incredible stock gains. Supermicro's share price is up more than 1,000% over the last year.
On the other hand, Goldman now thinks that most of the positive near-term growth catalysts are already priced into the stock. Given that Super Micro Computer stock is trading at roughly 52 times this year's expected earnings, the stage may be set for shares to see some volatility in the near term. Of course, the stock could go on to deliver stronger long-term performance, even if Goldman's team winds up being exactly correct with its pricing forecast.
Explosive gains have pushed Supermicro stock to more speculative valuation levels, but the business's outlook is evolving in very favorable directions. I wouldn't recommend selling the stock right now.
For investors with high-risk tolerance, I think taking a buy-and-hold approach to the stock could still have substantial payoffs. But investors should take a balanced approach to constructing their portfolio of AI stocks and avoid betting too heavily on any single name or making huge investments all at once -- particularly in cases where valuations have seen dramatic run-ups.
