It’s been a rather bearish day in the market for top tech stocks today. Super Micro Computer (NASDAQ:SMCI) is among the top high-flying artificial intelligence (AI)- related stocks seeing big declines, with SMCI stock down around 1% at the time of writing.
This move comes on an analyst downgrade from Nomura. The research firm lowered its rating on SMCI stock to “neutral” from “buy,” suggesting that limited upside potential exists relative to where shares of this server and storage provider currently trade.
That view has certainly taken a few investors aback. But the rationale behind this downgrade does seem relatively simple. Super Micro’s management team has raised the bar on where it expects the company’s revenue and earnings to come in moving forward. This raised bar could pose challenges for the company, as its previous surge was tied to a relatively low bar, making it easy for Super Micro to soar to its current dizzying valuation.
Let’s dive more into this research note and what was stated for investors following Super Micro closely.
SMCI Stock Declines on Analyst Downgrade
What’s interesting is that the consensus price target on SMCI stock currently sits at around $1,066 per share. Based on where the average analyst sees this stock trading in a year or so, that would imply a 20% upside.
For many investors, that’s enough upside. However, for some, taking a cautious view of the server and storage space may not be enough to justify buying at current levels. Nomura appears to be arguing that a gradual easing of CoWoS-S supply in 2024 and potential downtime due to a transition from Hopper to Blackwell GPUs later this year could cause the company to miss earnings. Whether that’s a top or bottom-line miss doesn’t really matter. In essence, these analysts are suggesting the raised bar will be much more difficult to pole-vault over, as has been the case in the past.
Analysts did note that Super Micro remains a top player in its core sector. Its advanced liquid cooling technology separates the company from the pack. Accordingly, growth is likely to continue. But it’s the rate of growth that matters. Today, this downgrade suggests investors may want to re-run their models on this stock before putting fresh capital to work.
On the date of publication, Chris MacDonald 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
