An analyst at Loop Capital revised their price target on Super Micro Computer Inc (NASDAQ:SMCI) stock to $1,000 from $1,500 on Monday, citing the AI โโserver maker’s efforts to restore its gross margin ( GM) and operating margin (OM) at 14% and 10%, respectively, as well as investor concerns about the company’s late 10-K filing.
However, the analyst believes that recent speculation about SMCI’s possible decline “is overblown and that its importance in the Gen AI server debate is understated.”
Super Micro’s 10K filing delay puts a damper on optimism
Super Micro said in August it was delaying the filing of its annual report, citing the need to assess “its internal controls over financial reporting”, sending the company’s shares plummeting.
The stock has lost nearly 20% in the past month.
The delay came a day after Hindenburg Research revealed it had taken a short position in the company, accusing Super Micro of “accounting manipulation.” Since hitting a high in mid-March, shares of SMCI have fallen steadily, losing nearly two-thirds of their value after a rally fueled by the artificial intelligence boom.
It remains unclear whether the company’s decision is linked to the Hindenburg report.
The company also did not revise its previously announced results for the fiscal year and quarter ended June 30. Last month, Super Micro reported a drop in quarterly profit margins due to rising server manufacturing costs and increased competition from rivals such as Dell (NYSE:DELL).
The company had been a major beneficiary of the creative AI boom as businesses invested in technology to support apps like ChatGPT. SMCI’s valuation soared from about $4.4 billion in early 2023 to a peak of $67 billion in March.
However, the rapid rise in TN shares has slowed since March as investors have realized that the companies’ big investments may take longer to pay off than expected.
Super Micro’s delay in filing its 10-K prompted several downgrades and price target cuts from Wall Street analysts in recent weeks, further dampening investor sentiment around the stock.
Blackwell will help SMCI’s margins recover, analyst says
Despite recent headwinds and a price target cut from $1,500 to $1,000, a Loop Capital analyst believes it’s not all doom and gloom for Super Micro.
According to the analyst, SMCI has the potential to achieve over $40 billion in normalized revenue.
Customer discussions indicate a feasible path to return to GM of over 14% and OM of over 10%, aided by NVIDIA Corporation’s (NASDAQ:NVDA) upcoming next-generation GPU architecture, Blackwell. The company believes that with such revenue growth and margin profile, SMCI could command a price-to-earnings (P/E) ratio of at least 20 times, justifying normalized earnings per share (EPS) of $50.00.
Loop Capital also presented various “What If” scenarios regarding SMCI’s future performance.
These included the possibility that SMCI would maintain its FY2025 revenue upside of $30 billion and recover its GM and OM targets over the next four quarters. The analysis highlights SMCI’s continued preference as an original equipment manufacturer (OEM) through the Blackwell cycle, which is expected to extend through most of calendar year 2026.
The analyst also discussed the competitive landscape, noting that while other Gen AI server vendors are entering the market, they don’t “offer the same high-margin services as SMCI (such as rack integration and tuning)โฆ and the ODMs look to 3rd-Parties for this feature does not match”.
“Therefore, clients currently see SMCI paying additional GM of 200 – 300bps as the likely outcome for Blackwell, moving GM back into the 14%+ range,” they add.
As for the delay in the 10-K filing, the analyst sees it as a minor hurdle and possibly a reflection of the company’s rapid growth, which is focused on execution.
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Reference;
Karaahmetovic, V. (2024)ย Is Super Micro (SMCI) a $1,000 stock? Wall Street analyst discusses By Investing.com,ย Investing.com. Investing.com. Available at: https://www.investing.com/news/stock-market-news/is-super-micro-smci-a-1000-stock-wall-street-analyst-discusses-3627723 (Accessed: 24 September 2024).