Super Micro Computer (SMCI), known to many as Supermicro, has been a hot topic on Wall Street lately. Despite previous claims of accounting issues, an independent committee found no errors. Since then, the company has switched to a new accounting firm, ensuring all financial documents meet the guidelines set by Nasdaq and the SEC.
With the resolution of those issues behind them, the stock has experienced quite a journey. It’s currently trading 50% above its position at the start of 2024, although at one point in the past 15 months, it soared well over 300%. This suggests there might still be untapped value in this stock, potentially overlooked due to its past controversies.
Recently, Northland Securities increased its price target for Supermicro to $70 per share. This implies a 66% upside from what it closed at last Friday, a return that any investor would eagerly welcome into their portfolio. But, is this a realistic goal for Supermicro?
Supermicro’s performance is closely linked to Nvidia’s success. Riding the AI wave, Supermicro manufactures critical server rack components needed for cooling GPUs, playing a vital role in the global AI infrastructure development.
While many peers don’t stand out, Supermicro offers something unique: its direct liquid cooling (DLC) technology. Unlike air cooling, this method uses liquid to cool GPUs, which are notorious for generating heat. This innovative technology, despite higher initial costs, can save clients up to 40% in energy expenses and requires 80% less space. This advantage allows servers to be packed more densely, minimizing the need for cooling space.
Nvidia’s new GPU architecture, Blackwell, presents a huge growth opportunity for Supermicro. Their DLC technology is tailored for Blackwell, meaning the more successful Nvidia is with Blackwell, the more Supermicro stands to gain.
With AI infrastructure and cloud computing still expanding, there’s plenty of growth potential for Supermicro, as evidenced by current market trends.
In Q2 of fiscal 2025 (ending December 31), Supermicro reported sales of $5.7 billion, marking a 55% increase from the previous year. For Q3, they project revenues between $5 billion and $6 billion, equating to around a 43% growth. This growth trajectory is expected to continue, with CEO Charles Liang forecasting revenues of $23.5 to $25 billion for fiscal 2025 and aiming for $40 billion in 2026.
Given this enormous market opportunity, the company’s stock seems undervalued. Trading at 15.9 times trailing earnings and 14.6 times forward earnings estimates, it appears to be a bargain.
The current valuation aligns with historical norms, largely because the market hasn’t fully recognized Supermicro’s unique positioning, especially as a favored partner for Nvidia’s Blackwell-equipped data centers.
Right now, Supermicro seems like a strong investment opportunity—some might even say it’s a steal. If the company can continue delivering strong financials and steer clear of further accounting issues, it could warrant a premium valuation. Whether it can hit the $70 mark as Northland Securities suggests remains uncertain, but such an upswing isn’t out of the question.
