In December 2022, $SUPER MICRO COMPUTER INC(SMCI)$ joined the S&P MidCap 400 index and will officially be a part of the $S&P 500(.SPX)$ in March 2024. Thanks to the soaring demand for AI computing products, this new AI stock has skyrocketed over 1700% in the past two years.
But you might not believe it, SMCI is still undervalued! And Wall Street analysts are giving it a "buy" rating, with a target price of $965, representing a 26% higher than its current share price of $762.
Expanding AI server market
The company develops accelerated computing platforms, integrating the latest chips, memory, and storage solutions from vendors like $Advanced Micro Devices(AMD)$ $Intel(INTC)$ $NVIDIA Corp(NVDA)$.
Analysts at Bank of America said:
With SMCI's competitive edge, the company's share in the AI server market is expected to rise, with sales expected to jump from 10% in 2023 to 17% by 2026.
Jim Kelleher from Argus is also bullish on this stock, said:
The company enjoys a leading position in the traditional server market and is the preferred partner for NVIDIA and other AI industry leaders. Whether it's training large language models, inference, deep learning, or other generative AI applications, SMCI is the go-to provider for GPU-powered data center infrastructure.
Q3 suffered minor setback
SMCI's third-quarter revenue fell short of expectations, and its share price plunged 15%.
Specifically, revenue rose 200% to $3.8 billion, but was slightly below Wall Street expectations of 209%. However, non-GAAP diluted net income per share rose 308% to $6.65, well ahead of the 255% growth expected by analysts.
In addition, the company also raised its revenue growth forecast for the 2024 fiscal year (ending June 30), and the midpoint of its sales growth guidance increased from the original 104% to 110%, and Wall Street expected 106%.
Reasonable Valuation
Wall Street expected the company's earnings per share to grow 49% over the next 3 to 5 years. Based on that earnings forecast, its P/E ratio of 42.7 is quite reasonable, and its PEG ratio is less than 1.
Compare that to NVIDIA's PEG ratio of 2, $Amazon.com(AMZN)$ 's 2.2, and $Microsoft(MSFT)$ 's 2.5. It's clear who's the real deal here!
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