Super Micro Computer (SMCI 5.37%) had a tough year in 2024 (specifically in the latter half) with its auditor resigning, which raised serious concerns about the company's financials and their overall accuracy. The high-flying stock would end up falling significantly in value, erasing a big chunk of the gains it had amassed in the months leading up to that point.
This year has been notably better. The company has benefited from the hype and excitement related to artificial intelligence (AI), and as of Tuesday's close of markets, its shares were up 72%. Is Supermicro's stock still a good buy, and can it continue rising higher?
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Supermicro's growth has slowed
Although Supermicro's business, which involves selling IT equipment and infrastructure, has been doing reasonably well, there's no denying its growth has slowed down significantly in recent quarters.
SMCI Revenue (Quarterly YoY Growth) data by YCharts.
While the growth rate remains positive, this may not be the high level investors are hoping for from a business that should be experiencing an increase in demand due to AI. It could be a sign that companies already have the infrastructure they feel they need. Or perhaps with a risk of an economic slowdown on the horizon, there is a bit more hesitancy in the markets from Supermicro's customers these days. Either way, it's not a great picture for growth investors.
That could be a problem, given its valuation.
The stock is not as cheap of a buy as it once was
Last year, Supermicro's stock took a beating and investors who bought it had a chance to buy shares of the tech company for a considerable discount, at a price-to-earnings (P/E) ratio of around 10. Today, however, with the stock surging in value, its P/E multiple sits at close to 32.
SMCI PE Ratio data by YCharts.
It's also trading around the consensus analyst price target of $48, which suggests that there may not be much more upside in the short term, at least based on analyst projections. That doesn't mean Supermicro can't indeed rise higher, but when you consider its slowing growth, it certainly could give investors a reason to think twice about buying it. Analysts can adjust their price targets, but the company will need to have stronger results in upcoming quarters to suggest that it deserves a higher valuation than where it is right now.
NASDAQ: SMCI
Key Data Points
Is Supermicro stock worth buying today?
The good news for Supermicro investors is that this year the business has been able to avoid significant controversies and question marks, which has allowed the AI stock to simply rise in value and make up for a troubling second half of 2024. The stock still hasn't gotten back to the highs of more than $100 it hit last year, but it's been doing well this year, nonetheless.
Yet without a faster growth rate and better margins to boost its earnings, it may not get back to those levels anytime soon. Investors also need to consider whether the excitement around AI may slow down in the near future, and how that may negatively impact Supermicro's valuation.
While the stock has done well this year, Supermicro may not be worth buying at this stage. Earlier in the year, when its valuation was low and beaten down, it provided investors with a good margin of safety. Now, however, the stock arguably looks expensive when considering its slowing single-digit growth.
At the very least, you may want to take a wait-and-see approach with Supermicro.
