Super Micro Computer (SMCI +6.36%) is one of the more controversial stocks on Wall Street. After allegations of accounting missteps last year, an external committee found no wrongdoing, and the company hired a new accounting firm, which has released all the necessary financial statements to comply with Nasdaq stock exchange and Securities and Exchange Commission guidelines.
While that was a wild roller-coaster ride to take investors on, the stock is just 50% higher than when it entered 2024, despite rising more than 300% at one time in the past 15 months. This seems like a stock that could have much more value than the market realizes, especially because it still has a black eye from the accounting allegations.
Northland Securities bumped its price target for Super Micro Computer (often called Supermicro) to $70 per share, which would indicate 66% upside from Friday's close. That would be a massive gain for the stock, and any investor would love to have a performer like that in a portfolio.
But is that a realistic expectation for Supermicro?
Super Micro Computer's business will be strong as long as Nvidia remains strong
Supermicro is another company benefiting significantly from the AI boom. It makes parts for server racks that house and cool GPUs. This may sound boring, but it's an important part of the artificial intelligence (AI) infrastructure being built globally.
Most of the competitors in this space don't have a differentiating factor, but Supermicro does. Its direct liquid cooling (DLC) technology allows GPUs (which produce a lot of heat) to be cooled with liquid rather than air. This may cost extra up front, but management estimates this technology saves its clients 40% in energy costs and occupies 80% less space. The efficiency allows racks to be placed closer together because there isn't as much airflow needed to cool them.
NASDAQ: SMCI
Key Data Points
One of the biggest growth catalysts for Suipermicro is Nvidia's new GPU architecture, Blackwell. Supermicro's DLC has been engineered with Blackwell in mind, so, if Nvidia's Blackwell GPUs sell well and continue proliferating, Supermicro will directly benefit from that.
With the AI infrastructure and cloud computing movements far from finished, Supermicro still has lots of room left for growth, which we're seeing play out right now.
There is strong growth coming for Supermicro
In the second quarter of fiscal 2025 (ending Dec. 31), Supermicro's sales totaled $5.7 billion, up 55% from the year-ago period. Management provided a similar outlook for the third quarter, with revenue expected between $5 billion and $6 billion, about 43% growth. This growth wave is expected to persist for some time. CEO Charles Liang projects $23.5 billion to $25 billion in revenue for fiscal 2025 and $40 billion for fiscal 2026.
Clearly, there's a massive opportunity here, yet the stock still looks dirt cheap. At 15.9 times trailing earnings and 14.6 times forward earnings estimates, it looks like an absolute steal at these prices.
SMCI PE Ratio data by YCharts; PE = price to earnings.
However, those valuations are fairly in line with historical levels. This is because the market believes there isn't enough space to differentiate Supermciro from competitors. But that's not the case, with it being the preferred vendor for data center infrastructure for Nvidia Blackwell GPUs.
Supermicro looks like a solid buy here and I'd even call it dirt cheap. It could regain a slight premium if it posts multiple quarters of good results and avoids any more accounting issues. Will it reach $70, like Northland Securities predicts? I'm not sure, but a big run-up like that might be possible.
