TLDR
- JPMorgan upgraded SMCI from Sell to Hold, raising price target to $45 from $35
- Stock jumped 8% on Friday and is up 38% year-to-date
- Company positioned to benefit from Nvidia Blackwell server shipments with higher ASPs
- Northland Securities more bullish with $70 price target (66% upside)
- Despite past audit issues, SMCI targets ambitious revenue of $60 billion by fiscal 2026
Super Micro Computer has weathered significant challenges in recent months. The company faced allegations of accounting missteps last year that temporarily cast a shadow over its operations.
An external committee found no wrongdoing after investigating these allegations. This led to the company hiring a new accounting firm.
The new firm has released all necessary financial statements to comply with Nasdaq and SEC guidelines. JPMorgan analyst Samik Chatterjee noted that the company has “cycled past” the uncertainty associated with its delayed SEC filings.
This resolution has helped restore investor confidence. The stock has rallied 38% so far this year despite ongoing market volatility.
JPMorgan’s New Outlook
JPMorgan’s upgrade from Sell to Hold represents a major shift in sentiment toward SMCI. Analyst Chatterjee increased the price target from $35 to $45.
The upgrade was based on two key factors. First, Super Micro is now current with its financial filings.
Second, the company stands to benefit from increased server shipments powered by Nvidia’s Blackwell platform. These servers are seeing higher demand than previous generations.
Chatterjee raised his revenue estimate for the next 12 months. This revision comes after favorable data points in recent weeks about better supply ramp from Nvidia.
Blackwell-based servers are expected to boost SMCI’s revenue growth due to higher average selling prices. This technological advantage positions the company well in the competitive server market.
However, Chatterjee remains cautious about SMCI’s gross margins. Heightened competition could put pressure on profitability.
He expects the company’s gross margin to moderate in Fiscal 2026 compared to Fiscal 2025. This moderation may limit EPS growth compared to revenue growth.
Despite these concerns, Super Micro is targeting ambitious revenue of $60 billion by Fiscal 2026. CEO Charles Liang projects $23.5 billion to $25 billion in revenue for fiscal 2025 and $40 billion for fiscal 2026.
Technological Edge
Super Micro Computer offers a differentiating factor in the server market. Its direct liquid cooling (DLC) technology allows GPUs to be cooled with liquid rather than air.
This technology saves clients an estimated 40% in energy costs. It also occupies 80% less space than traditional cooling methods.
The efficiency allows server racks to be placed closer together. This is possible because there isn’t as much airflow needed to cool them.
Super Micro’s DLC has been engineered with Nvidia’s Blackwell architecture in mind. This strategic alignment positions the company to benefit directly if Blackwell GPUs sell well.
In the second quarter of fiscal 2025 ending December 31, Super Micro’s sales totaled $5.7 billion. This represents a 55% increase from the same period a year earlier.
Management provided a similar outlook for the third quarter. Revenue is expected between $5 billion and $6 billion, about 43% growth year-over-year.
This growth wave is expected to persist for some time. The ongoing expansion of AI infrastructure and cloud computing creates sustained demand for Super Micro’s products.
Last week, the company announced the launch of a new optimized storage server. This server uses Super Micro’s Petascale architecture and is powered by Nvidia’s Grace CPU Superchip.
Valuation Considerations
Despite its strong growth potential, SMCI stock appears reasonably valued. The stock trades at 15.9 times trailing earnings and 14.6 times forward earnings estimates.
These valuations are fairly in line with historical levels. The market still applies a discount due to past accounting issues.
JPMorgan’s new price target of $45 reflects a P/E multiple of 10x. This represents an increase from the previous multiple of 9x.
However, this still indicates a modest discount to peer Dell Technologies. Dell currently trades at a P/E of 11x.
Chatterjee explained that the discount is due to SMCI’s past audit and filing issues. These may continue to be an overhang on the P/E multiple.
Bullish Analyst Projections
Northland Securities has taken a more optimistic view of Super Micro Computer. The firm recently bumped its price target to $70 per share.
This target implies a potential 66% upside from Friday’s closing price. Such a projection suggests significant growth potential for investors.
Northland’s bullish outlook likely stems from the company’s ties to Nvidia and its position in the AI infrastructure market. The firm appears to believe that Super Micro’s technological advantages will allow it to capture market share.
Wall Street has a Moderate Buy consensus rating on Super Micro Computer stock. This rating is based on four Buys, five Holds, and one Sell recommendation.
The average SMCI stock price target stands at $49.89. This implies about 18.4% upside potential from current levels.
This mixed view reflects both optimism about growth prospects and caution regarding past issues. Several pending matters still concern analysts.
These include a CFO change, needed improvements to internal controls, and closure of a Department of Justice probe. Resolution of these issues could further improve market sentiment.
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