After a meteoric rise over the past year fueled by the AI frenzy, shares of server manufacturer Super Micro Computer (SMCI 8.89%) are starting to face some resistance. While the stock is still up more than 1,000% since the beginning of 2023, it's lost considerable ground in the past few weeks.
An analyst at Northland sees this dip as a bump in the road. Northland's Nehal Chokshi maintained an outperform rating on the stock while boosting his price target from $925 to $1,300 per share. That new price target is about 34% higher than where the stock trades as of this writing.
Market share momentum
Chokshi estimates generative AI could drive 20% gains to knowledge worker productivity, in turn fueling the long-term expansion of the AI server market to $560 billion. He sees Super Micro eventually controlling 16% of that large market.
So while Super Micro stock tumbled in response to the company's recent decision to raise about $1.75 billion through an equity offering, Chokshi views the capital raise as a positive since Super Micro has greater resources to invest in its sizable growth opportunities.
Is Super Micro stock a buy?
There's no question Super Micro is growing rapidly. Revenue more than doubled year over year to $3.7 billion in the company's most recent quarter as demand for AI servers exploded. The company expects to generate $14.5 billion of revenue (at the midpoint of guidance) in the current fiscal year (ending June 30, 2024) and sees a path to $25 billion in annual revenue.
However, investors must remember two things. First, this pace of growth won't last forever. And second, Super Micro operates in a highly competitive, low-margin industry. The company is quick to get products to market, giving it an edge as the AI industry rapidly evolves. But trading at a premium 45 times forward earnings, the stock could tumble at any sign of a slowdown.
