Super Micro Computer (NASDAQ: SMCI) helped mitigate market fear by announcing the appointment of its new auditor and putting a bottom in its stock price decline. BDO USA is part of a global franchise among the world’s top five accounting firms, so its approval will carry weight. The only question is when it will issue its first statements and what they may say. The critical details will be about accounting practices and how they impact the robust sales and earnings outlook.
Super Micro is central to the AI revolution, providing some of the most advanced data center infrastructure built on NVIDIA (NASDAQ: NVDA) GPUs and CPUs. Its rack-scale liquid-cooled server systems help data centers cut operating costs by an estimated 40%, which is significant because semiconductor technology is getting more powerful by the generation, and the GPU clusters and data centers built with them are getting larger and larger. The newest are estimated to use as much power as a small town. Demand for NVDA products is up significantly and expected to exceed support for the next few quarters, which equates to the same for Super Micro Computer.
Super Micro Resets Market Outlook for F2025
Shares of Super Micro Computer are down 75% from their high and are deeply undervalued. The stock price aligns with the price at EOY 2023 before the AI bubble was inflated, which isn’t pricing in any AI-driven gains. Assuming the stock was fairly valued then, its business today is worth much more, regardless of any corrections to the financial statement. Now, AI is in the picture and driving growth and cash flow. The last officially reported quarter was Q4 F2024, which included a 143% increase in sales and near-doubling of the adjusted earnings, with growth expected to continue in F2025. That kind of growth deserves a premium valuation; this stock trades with a price multiple in the low teens.
Super Micro has yet to file its F2024 annual report but is on track to do so soon. The official results for Q1 are also late, but the company released a preliminary report that reset the market outlook, providing a path to higher share prices once the official reports are filed. It trimmed the revenue outlook, aligning the high-end with the previous low, and narrowed the guidance for earnings, forecasting another quarter of triple-digit growth.
Super Micro’s preliminary figures were less than the market expected but support the idea that this company is undervalued, trading in the low $30s, with revenue up 180% year-over-year (YoY) and earnings nearly doubling. The guidance for Q2 was equally tepid concerning the market's expectations but no less robust compared to the prior year, another reason to think the stock is undervalued. The Q2 forecast includes a slowdown in YoY growth as the comps get tougher, but growth is expected to sustain at an above-60% pace and is likely cautious given the industry trends.
The latest results from NVIDIA show that growth is slowing for its business but sustaining a high double-digit pace, outpacing guidance and analysts' expectations. The data center segment, the more telling indicator for SMCI investors, is up more than 100% in Q3 2024. Super Micro Computer is not the only server manufacturer using NVIDIA chips, but it is a significant one. It is included in a list of clients prominently mentioned by NVIDIA on its conference call, so outperformance is likely. Not to mention that Super Micro executives have reason to be cautious; setting the bar too high and not delivering would be detrimental to the stock price.
Analysts Are Holding Onto Super Micro Computer Stock: Expect Volatility
The analysts' sentiment has dimmed since early 2024 due to the accounting issue, but they continue to hold the stock and show some conviction in the rating. MarketBeat tracks 17 analysts, with 88% rating at Hold or higher, nearly 25% rating at Buy, and only two ratings at Sell. Susquehanna and JPMorgan Chase issued the two sell-equivalent ratings, which set the low price target of $23. Susquehanna’s $32 target aligns with a critical support target where SMCI stock trades in late November; the consensus price target is trending lower in 2024 but implies more than 100% upside from the critical support target.
Super Micro stock price imploded over the last year as the AI bubble burst, analysts sentiment dimmed, and short-sellers piled into the trade. However, the market hit bottom in late 2024 and is ready to rebound higher, provided the accounting issues can be resolved. The short interest remains high at nearly 17% and may continue to weigh on the price, but the latest data shows it is declining and adding lift to the market. A positive accounting outcome would fuel the short-covering rally and possibly spark a short squeeze. The critical support target is near $28 and shows strong support at that level with a significant spike in the volume.
