With shares up by over 700% in the past 12 months, Super Micro Computer (NASDAQ: SMCI) has been one of the biggest beneficiaries of the artificial intelligence (AI) boom, even outpacing giants including Nvidia, which rose 230% in the same period. While the company doesn’t design and manufacture its AI chips, it helps turn these items into ready-to-use computers and servers for its data center customers.
But while Super Micro’s business is booming, has its explosive rally put shares outside reach for value-conscious investors? Let’s dig deeper to find out whether this stock is still a good long-term buy.
Why is Super Micro booming?
Historically, Super Micro has been a relatively cheap company. At the start of 2023, its shares were worth just under 10 times earnings, which was a dramatic discount to the S&P 500 average of around 27.
The discount probably had a lot to do with Super Micro’s business model. Unlike many of the largest technology companies, it doesn’t specialize in software — which tends to attract premium valuations because of its high margin and scalability. The company also doesn’t design and manufacture high-priced chips as Nvidia or AMD do. Instead, it turns these cutting-edge products into computer servers that data center customers use to run websites, AI algorithms, and other applications.
Super Micro is benefiting from soaring demand for AI-related data center hardware. Fiscal second-quarter sales jumped by 103% year over year to $3.66 billion while net income increased a much more modest 68% to $296 million. But it’s unclear how much steam the rally has left.
Can Super Micro’s rally continue?
Some analysts are still optimistic about Super Micro, with Rosenblatt securities giving it a 12-month price target of $1,300, a potential 81% upside, based on projected increases in AI-related demand. But there are some reasons investors might want to stay cautious.
For starters, Super Micro doesn’t have a particularly deep economic moat. According to the Financial Times, many of the largest data center operators, including Amazon, Microsoft, and…
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