The stock of Super Micro Computer (SMCI 8.89%), also known as Supermicro, continued its meteoric rise to kick off the week. It jumped as much as 10.3% on Monday morning, and as of 11:59 a.m. ET today, the stock was still up 9.1%.
The catalyst that sent the artificial intelligence (AI) server maker higher was bullish coverage from a pair of Wall Street analysts.
Increasing bullishness
The first bit of bullish commentary comes courtesy of JPMorgan analyst Samik Chatterjee, who initiated coverage with an overweight (buy) rating and a $1,150 price target. This suggests potential upside of 18% compared to Friday's closing price.
The analyst noted that Supermicro is "the leading company in the AI compute market," and he expects the robust demand driven by the accelerating adoption of AI to continue.
Not to be outdone, Northland analyst Nehal Chokshi increased his price target to $1,300, for a 34% upside, while maintaining an outperform rating on the shares. The analyst called Supermicro "the branded server market-share leader" and believes the company is on track to command a 16% share in the generative AI server market, which his firm estimates is worth $560 billion.
Accelerating demand
Since much of generative AI is processed in data centers, the resulting upgrade cycle is booming and is expected to continue. Bernstein analyst Toni Sacconaghi predicts that the AI server market will grow 75% annually over the next three years, saying the buildout is "unprecedented."
Furthermore, Supermicro has continued to gain market share at the expense of its larger rivals, thanks in part to collaborations with the biggest AI chipmakers, giving the company early access to the most in-demand processors.
The stock has been on fire, rallying more than 1,200% since the start of last year, and is up 276% this year alone as of this writing. Despite its parabolic rise, it is still surprisingly affordable, selling for less than 3 times next year's sales.
In the company's fiscal 2024 second quarter (ended Dec. 31), Supermicro's revenue soared 103%, while earnings per share jumped 71%, despite heavy capital spending to increase its output. Given that growth, I don't expect Supermicro's stock to remain this cheap for long.
