By Eric J. Savitz
Super Micro Computer stock has more than rallied, it has skyrocketed -- 180% alone so far this year and 700% over the last 12 months -- spurred higher by stellar results amid soaring demand for artificial-intelligence hardware.
What's not entirely clear is now much upside remains.
KeyBanc Capital Market analyst Tom Blakely waded into that debate on Wednesday, less than a week ahead of the company's March quarter earnings report. The analyst came in right down the middle, picking up coverage of the stock with a target price of $765, a smidge below recent levels. Super Micro shares on Wednesday were 3.4% higher at $787.90.
Blakely notes that the stock, at about 27 times 2024 estimates, trades about in line with other infrastructure plays, at about 28 times.
The analyst points out in a research note that Super Micro has about 6% of the server infrastructure market, including an estimated 10% share of the AI server segment. The company's AI position can surge to 23% of the market this year, "with competitive moats that should sustain if not expand this share in coming years," he adds Blakely estimates that AI servers accounted for about 70% of Super Micro's revenue in the December quarter.
Blakely also notes other providers "are making inroads" in the market . Other notable suppliers include Hewlett Packard Enterprise, Lenovo, and Dell Technologies . However, he also points out there is the potential that GPU-based computing systems based on chips from Nvidia could supplant some traditional CPU-based servers.
On an upbeat note, demand continues to outstrip supply for both GPUs and for power to drive AI-based data centers, Blakely says. As the power issue is addressed, the analyst believes, demand could increase.
Blakely sees a range of potential outcomes for Super Micro shares. In his bull case scenario -- AI use cases spurring growing demand for accelerated computing and the company expanding capacity and growing market share -- he sees the stock potentially rallying as high as $1,173, which would be a further gain of more than 50%.
His bear case is more competition from legacy server companies and less need for accelerated computing than is now expected. In that scenario, he uses a multiple of 14 times expected 2024 non-GAAP profits, about in line with Dell, with a bottom for the stock of $268, about a 65% potential decline.
His base case is right up the middle, assuming the stock is fairly priced as recent levels.
Write to Eric J. Savitz at eric.savitz@barrons.com
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(END) Dow Jones Newswires
April 24, 2024 11:08 ET (15:08 GMT)
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