Super Micro Computer stock (NASDAQ:SMCI) skyrocketed 16% on Tuesday after Raymond James began coverage with an Outperform rating and a $41 price target. While some of the enthusiasm is justified, considering Super Micro’s involvement in the generative AI sector and its robust recent growth, investors ought to move with caution regarding the stock for a few reasons.
Strong Ties To Gen-AI, Reasonable Valuation
Super Micro’s server products are closely linked to Nvidia’s GPU ecosystem. With Nvidia increasing production of its new Blackwell chips, the demand for SMCI’s AI-optimized server solutions could experience an increase. Raymond James estimates that Super Micro commands approximately 9% of the $145 billion AI platform market. The company is also gaining recognition as a significant player in direct-liquid-cooled (DLC) server technology, essential for handling compute-intensive AI tasks. Super Micro’s Valuation is another positive factor. The stock is traded at about 13x estimated FY’26 earnings, which is significantly lower than the S&P 500’s forward multiple of over 20x. This discount seems attractive, particularly given Super Micro’s revenues increased by 74.5% year-over-year over the last three years.
Weak Recent Earnings, Governance Issues
There are a number of concerns as well. Preliminary results for its March quarter significantly failed to meet expectations. The server manufacturer is now projecting revenue between $4.5 billion and $4.6 billion, a considerable decline from its earlier guidance of $5 billion to $6 billion. Earnings per share are also expected to fall short of predictions, estimated to be between $0.29 and $0.31 per share. Super Micro has attributed the shortfall to “postponed customer platform decisions,” which caused some orders to be delayed until the next quarter. Nevertheless, the scale of the shortfall raises concerns about broader demand trends and could even suggest a loss of market share for Super Micro Computer to rivals like Dell Technologies.
Additionally, there are issues regarding corporate governance. Over the past year, Super Micro has confronted significant controversies, including accusations of accounting discrepancies, delays in SEC filings, and scrutiny from short-sellers. Although some of these issues have lessened in recent months, following the company’s recent revelation of its financial statements, the latest earnings miss, combined with a patchy record of corporate governance, implies that investors may need to be cautious with SMCI stock.
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