Super Micro Computer Inc. is a proven “AI winner” according to Goldman Sachs analyst Michael Ng, but that doesn’t necessarily mean you should buy the stock.
With the shares up about 1,000% since the start of 2023, they’re “fairly valued,” in Ng’s view. He initiated coverage of Super Micro’s stock
SMCI,
with a neutral rating and $941 target price Monday, writing of its “premium valuation” after that big run higher.
Super Micro’s stock was advancing 26% in Monday’s midday trading, despite the measured tone from Goldman, following the announcement late Friday that the company will be added as an S&P 500 component.
Super Micro has mirrored Nvidia Corp. with its revenue growth and inflection in earnings power over the past two years, according to Ng. The stock’s huge rally comes as earnings growth is surging, while the stock’s multiple now stands at 32 times forward estimates for earnings per share. That’s “in line with other AI enablers,” he wrote.
Ng sees Super Micro as “well positioned” to cater to the demand from cloud service providers for artificial-intelligence infrastructure moving forward, but he also expects that market to become more crowded. Hardware rivals Dell Technologies Inc. and Cisco Systems Inc. have more of an enterprise focus, he said.
“In our view, [Super Micro’s] unique speed to market capabilities have positioned them attractively to serve AI-related demand,” Ng said, but “other larger vendors … have since come to market with solutions optimized for AI training, so it is likely that [Super Micro’s] spike in market share in recent quarters may normalize lower as competition increases.”
Ng pointed to expansion in Super Micro’s operating margins over the past two years, something he attributes in part to the company’s diversified production, revenue acceleration and gross-margin expansion. But margins on gross profit and earnings before interest and taxes could “normalize lower” as Super Micro focuses on winning market share with more price-competitive offerings, he wrote.
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