Potential Soaring of Super Micro's Shares to Reach $100?
In the dynamic world of technology, Super Micro Computer (SMCI) has been making waves, surpassing its all-cap stocks benchmark and delivering impressive returns for investors. The Silicon Valley-based company, a key supplier of custom, high-density GPU servers for Nvidia's data center clients, has seen its stock price skyrocket nearly 10 times over the past three years.
Currently trading at around $47 per share, an increase of over 2x in Super Micro's stock could be a tangible prospect in the medium term, potentially reaching beyond $100 per share. This optimistic outlook is backed by several factors, including the company's anticipated growth in revenue and net margins.
Super Micro is expected to grow its revenue by nearly 48% to $22 billion in FY'25, with projections indicating a further 35% increase in FY'26 to around $30 billion. If the company manages to elevate its sales by an additional 35% in FY'27, this would result in a growth rate of about 2.5x over three years.
Moreover, Super Micro's adjusted net margins could witness a notable turnaround, potentially doubling from FY'25 to FY'28, reaching approximately 12%. This margin improvement, combined with revenue growth, enhances the company's valuation.
The justification for Super Micro's current relatively high P/E multiple mainly rests on these strong expected revenue growth and margin improvement prospects. The stock's forward P/E is lower at approximately 19.8, reflecting anticipated earnings growth that justifies the current price. Moreover, Super Micro's PEG ratio is about 0.67, which is below 1.0, indicating the stock may be undervalued relative to its earnings growth potential.
The company's strong performance is also evident in its share price, which has appreciated over 48% year-to-date, reflecting market confidence in its growth prospects. Despite a P/E around 22 to 26, SMCI trades at a significantly lower P/E than the broader Computer and Technology sector average of about 45, indicating it is not excessively expensive compared to its sector peers.
However, it's important to note that Super Micro has faced scrutiny regarding corporate governance, including allegations of accounting anomalies, delays in SEC filings, and pressure from short-sellers. These issues should be carefully considered by potential investors.
In conclusion, Super Micro Computer’s high P/E multiple is justified by its robust projected earnings growth (~19%), improving margins, and a low PEG ratio (~0.67), making it appear reasonably valued relative to its strong growth outlook and sector peers. As the demand for enhanced computing power increases due to the rise of multimodal AI models and the production boost of Nvidia's Blackwell GPUs, Super Micro Computer could continue to thrive in the tech industry.
Investing in the Super Micro Computer (SMCI) could offer potential gains, with an increase of over 2x in Super Micro's stock being a tangible prospect in the medium term, potentially reaching beyond $100 per share. This optimistic outlook is backed by anticipated growth in Super Micro's revenue and net margins, along with technology industry trends such as the rise of multimodal AI models and the production boost of Nvidia's Blackwell GPUs. Nevertheless, potential investors should carefully consider the company's past issues regarding corporate governance.
