It’s been a long way down for Super Micro Computer (NASDAQ:SMCI). After riding the artificial intelligence wave to new heights and hitting $1,229 per share, Super Micro Computer stock lost over a third of its value.
The catalyst for much of the loss was barely missing analysts bloated revenue expectations. And though Super Micro came up just short, the stock sold off and took down much of the rest of the tech sector with it. Other chipmakers fell in sympathy, including Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD).
Although the sector has regained some of the lost ground, and SMCI stock has led the way rising 8% since the report, it remains well below its peak. Investors may rightly wonder whether the tech leader can become a $1,200 stock again.
Cheap at Any Price
Super Micro reported sterling financial results. Revenue tripled to $3.85 billion while earnings increased 400% to $6.65 per share.
It also raised its full-year revenue guidance to between $14.7 billion and $15.1 billion, well ahead of analyst expectations for $14.6 billion. But because Wall Street had also forecast the chipmaker would bring in $3.95 billion in sales, the market beat down SMCI shares.
What it seems to show is the market remains concerned about valuations. As bright as Super Micro’s future is, the stock was richly valued. Today, though, after losing 35% of its value from its all-time high, shares are attractively priced.
SMCI stock goes for 45 times trailing earnings and 4x sales, typically expensive valuations, but the chipmaker also trades at a much more reasonable 23 times next year’s earnings estimates. Analysts predict Super Micro’s profits will grow at a staggering 62% annually for the next five years, yet shares trade below that rate.
Its price-to-earnings growth rate is just 0.72. Anything below 1 is considered cheap. And for a fast-growing industry behemoth like Super Micro Computer, this price is a steal.
AI-Powered Market Share Gains
The company is the premier provider of artificial intelligence (AI)-optimized computers, servers, networks, storage solutions and workstations for data centers and other industries.
Data centers, in particular, are a huge growth market at the moment. Hyperscalers like Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META) demand more infrastructure to handle the complex computational requirements of AI.
Amazon is one of the largest data center operators for its cloud services business, with 125 sites around the world. Microsoft operates 300 physical data centers in 64 regions globally.
McKinsey & Company estimates U.S. data center demand will grow 10% annually through 2030 with construction hitting $49 billion. But because the hyperscale market is forecast to grow 20% a year, McKinsey’s outlook may be conservative.
Depending upon who’s counting, Super Micro Computer has between 5% and 7% of the branded server market, far behind leaders Dell Technologies (NYSE:DELL) and Hewlett Packard Enterprise (NYSE:HPE) with 19% and 13% shares, respectively.
Yet SMCI is witnessing tremendous growth from AI graphics processing unit platforms. Over 50% of the $3.85 billion in revenue it generated in its fiscal third quarter came from AI GPU customers. Dell and Hewlett-Packard report much lower percentages of server revenue coming from AI systems.
Don’t Wait Too Long
It is clear Super Micro Computer is leading the data center industry’s AI conversion. Although the market has bid down SMCI stock, the company is at the forefront of the revolution and will see significant growth for years to come.
To attain a $1,200 per share price level, Super Micro Computer stock needs to rise 54% from its current price. Investors shouldn’t expect that to happen overnight.
However, within the next year, it certainly seems possible. It is also well within the bounds of reasonable to expect it within two years.
That should make SMCI stock a buy for investors.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
