Super Micro Computer (NASDAQ:SMCI) may not be a household name, but it’s quickly become one of the most popular AI stocks among investors. However, alongside a growing legion of fans has come a fair number of critics, who believe that SMCI stock is at risk of a big reversal.
Why? Three key concerns. First, concern that the AI server maker’s rate of growth is not sustainable. Second, concern that competition will begin to affect its performance. Third, concern that valuation, even when taking into account recent growth, has gotten out hand.
However, taking a closer look, it’s clear that bearishness for Super Micro based on these factors is an overreaction. Instead of being on the verge of reaching a top, shares have much more room to run from here.
SMCI Stock: Deconstructing the Bear Case
Before delving into the bull case for Super Micro Computer, let’s deconstruct the bear case. Namely, the aforementioned concerns about unsustainable growth, the threat of competition, as well as SMCI’s rich valuation (51.9 times earnings).
Yes, on the surface it may seem as if Super Micro Computer’s recent growth is a “one and done” event. As the buildout of the tech sector’s artificial intelligence infrastructure slows down, revenue and earnings growth will slow down from the super high levels reported recently, such as last quarter (103.3% revenue growth, 62.4% earnings growth).
Then again, maybe not. According to analysts at BofA, who recently raised their price target on SMCI stock from $1,040 to $1,280 per share, annual revenues for the AI server market could surge from $39 billion in 2023, to $200 billion in 2027.
Much like how AI chip leader Nvidia (NASDAQ:NVDA) stands to gain the most from the growth of the AI chips sector, a similar scenario could play out for this leading name in AI servers.
As the BofA analysts also argued, because of factors related to configuration and customer relationships, SMCI is likely to maintain its competitive edge.
What Could Drive the Next Big Rip
As the AI boom continues, don’t expect SMCI stock to suddenly collapse. Still, that’s not to say that the stock’s upward climb will steadily continue, with no turbulence.
For instance, ahead of and following Super Micro Computer’s next quarterly earnings release (expected to occur in April), investors sitting on big gains may take profits.
This could lead to a post-earnings sell-off, rather than a post-earnings rally (as what happened following last quarter’s results).
If excitement for Super Micro Computer wanes, another rise in shares may occur. In recent months, analysts have been upping their FY2025 earnings forecasts for SMCI. FY2025 earnings consensus now comes in at around $30 per share.
Super Micro’s leading position in the AI server space suggests upward movement in consensus forecasts.
Complete Your AI Exposure, by Making This AI Server Winner a Buy
A further indication that FY2025 will be another banner year for Super Micro Computer may just well be what drives the stock to $1,250 or even to $1,500 per share.
Over a longer time frame, if Super Micro continues to be the “Nvidia of AI servers,” a move to even loftier price levels is well within reach.
For full AI exposure, you need to own several, not just one, AI stock. Better yet, make sure this collection of AI stocks gives you exposure to each portion of the artificial intelligence value chain.
With NVDA of course you gain AI chip exposure. There are many A-rated stocks that will give you exposure to the software end of the sector.
To gain exposure to the AI server/infrastructure sector and complete the set, consider buying and holding SMCI stock.
SMCI stock earns an A rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in SMCI and NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
