Shares of Super Micro Computer (SMCI +0.28%) rallied on Tuesday, increasing 13.8% as of 12:05 p.m. ET.
Supermicro has been a controversial stock over the past six months, as former auditor Ernst & Young resigned in October; however, the company's new auditor, BDO, signed off on the company's financial statements in February, allowing the artificial intelligence (AI) server company to remain listed.
However, a relatively disappointing June quarter outlook revealed on its May 6 earnings report, at least compared with expectations, sent the stock down again more recently.
Nevertheless, analysts at Raymond James initiated coverage on Supermicro today with an outperform rating and $41 price target -- about 30% higher than where the stock closed yesterday.
NASDAQ: SMCI
Key Data Points
"A market leader in AI"
The Raymond James team, led by analyst Simon Leopold, is optimistic on Supermicro due to its continued leadership in AI infrastructure, with around 70% of its revenue coming from AI servers. The team also believes Supermicro occupies a "sweet spot" between the high-end enterprise server makers like Dell Technologies and HP Enterprises and the "original device manufacturers" (ODMs), which make low-cost servers on contract for third parties like the cloud giants.
Supermicro's "middle" position based on its building block architecture and ecosystem enables it to produce highly customized designs in volumes and at very competitive prices. In addition, Raymond James cites Supermicro's large U.S. footprint relative to other server makers as an advantage in the age of tariffs.
Image source: Getty Images.
Betting on overcoming challenges
Raymond James also points out challenges, especially the current Hopper-to-Blackwell transition in AI GPUs. That was cited by Supermicro management as the reason for the underwhelming March quarter results and June quarter guide, as customers took time to decide which platform to build.
But as long as AI remains a long-term secular theme, Raymond James is betting Supermicro will be able to translate that into growth opportunities, due to its strong competitive position relative to other business models.
