A new bull says Super Micro’s revenue and earnings growth rates are compelling when compared to those of other hardware players
Super Micro has a compelling growth profile, according to JPMorgan.
Another analyst has joined the bull camp on shares of Super Micro Computer Inc., which have experienced a nearly 800% surge over the past 12 months.
In light of that run, the stock trades at about 36 times JPMorgan’s estimates for earnings per share over the next 12 months. That’s a “premium valuation,” according to JPMorgan analyst Samik Chatterjee, but one that he thinks is justified given how quickly the artificial-intelligence-server market is growing.
He initiated coverage of Super Micro’s stock with an overweight rating and $1,150 target price Monday. That target implies 18% upside from Friday’s close of $972.74.
Super Micro shares jumped 7% in morning trading Monday.
Chatterjee noted that Super Micro stands out positively on a couple of metrics. The server maker has the highest projected compound annual growth rate for revenue and earnings per share among traditional hardware companies, by his math.
He forecasts that Super Micro can grow revenue at a 43% annual clip between fiscal 2023 and fiscal 2027, a projection that assumes the company has about 10% to 15% share of the AI server market by the end of that period. And that estimate “still appears conservative given the early lead the company has in the AI market,” Chatterjee said.
Super Micro could also grow earnings per share at a 43% compound annual rate over the same span.
“The early phase of the AI compute investments cycle is being driven by cloud hyperscalers and large Tier 2 cloud service providers which have pricing power and [are] driving Super Micro to sacrifice on gross margins,” he wrote. But enterprise customers are poised to make up the bulk of revenue for the AI server market by 2027 and 2028, according to Chatterjee, which should help the company pick up its gross margins.
He pointed to “potential upside in earnings” as another reason he recommends the stock.
Overall, Chatterjee said he likes Super Micro’s position “leading” the AI-computing market. “We expect the leadership to continue, led by a balance of custom-built solutions and fast time to market, although potential upside is more likely from rapid expansion in the AI server market rather than expansion of the already premium valuation multiple,” he wrote.
