After a huge 2023, Super Micro Computer Inc. (ticker: SMCI) is off to a red-hot start to 2024. In fact, SMCI stock is up 226.6% through April 8 this year, nearly tripling the gains of Nvidia Corp. (NVDA), the second best-performing stock in the S&P 500.
Outperformance is certainly a familiar concept for Super Micro Computer investors in recent years. Since the company’s initial public offering in 2007, Super Micro Computer’s market capitalization has grown from just $229 million to $53 billion.
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With the stock up 2,012% since the beginning of 2022, some investors are skeptical of buying Super Micro Computer at its current price. Bulls argue that the company’s exposure to massive secular growth trends such as artificial intelligence and cloud computing suggest the stock still has significant long-term upside, even after its huge run.
Here’s a look at the stock’s history and analysts’ current outlook:
— Super Micro’s 17-year run.
— Super Micro stock by the numbers.
— What analysts say.
Super Micro’s 17-Year Run
Super Micro Computer went public in March 2007, pricing its IPO at $8 per share. At the time, the company reported $302.5 million in revenue and $16.9 million in net income for the 2006 fiscal year.
In 2007, the high-performance server market was dominated by legacy technology juggernauts such as Hewlett-Packard Enterprise Co. (HPE) and Dell Technologies Inc. (DELL), making Super Micro’s path to establishing a major foothold an uphill battle to say the least. Some early potential investors may have been spooked by the U.S. Justice Department’s case against Super Micro for indirectly selling motherboards to Iran. The company pleaded guilty to a felony charge and agreed to pay a $150,000 fine in 2006.
To make matters worse for IPO investors, the stock market began to crash during the global financial crisis only about a year after the company went public. Super Micro shares had climbed as high as $10.92 in late 2008 before the broad-based market sell-off tanked them all the way down to $3.63, a level that remains the stock’s all-time low to this day.
Fortunately, by 2010 the stock market was back on solid ground and investors were rewarding Super Micro’s impressive growth numbers, which exceeded 40% that year. Super Micro shares climbed as high as $19.55 in 2010, but the stock stalled at that level for several years before finally breaking out to the upside in 2014. By that time, Super Micro had already established differentiated products in the x86 server market, leading to a resurgence in the company’s revenue growth and driving analyst earnings estimates higher.
In 2017, the company’s technology got another vote of confidence from the market when Super Micro announced an unnamed “technology-leading Fortune 100 company” had deployed more than 30,000 Super Micro MicroBlade servers at a Silicon Valley data center facility.
By far, the most challenging period for Super Micro IPO investors to navigate was 2018 and 2019. In August 2018, the company announced its stock would be suspended from trading and then delisted from the Nasdaq after it failed to file financial reports due to internal accounting issues. These types of accounting problems are one of the biggest red flags a stock can have, and Super Micro’s accounting woes were nothing short of a complete debacle. Incredibly, the company didn’t file its full-year financial reports for fiscal 2017 until May 2019. Super Micro ultimately paid a $17.5 million fine to the U.S. Securities and Exchange Commission related to violations of federal securities laws. Super Micro finally gained permission from the Nasdaq to re-list its shares on Jan. 9, 2020.
Super Micro shares also took a big hit in 2018 after a Bloomberg report claimed the Chinese government had installed malicious spy chips on Super Micro motherboards, allegedly exposing customers such as Amazon.com Inc. (AMZN) and Apple Inc. (AAPL) to cybersecurity attacks.
From 2020 on, Super Micro shares have delivered essentially parabolic returns for investors as demand for high-end servers has exploded. The stock recently reached an all-time high of $1,229 in early 2024 before pulling back to $928.50 as of market close on April 8.
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Super Micro Stock by the Numbers
Despite its many issues, Super Micro’s ability to continue to innovate has helped the company grow its revenue by 222% from 2016 to 2023, including an impressive 37% growth in its fiscal year ending June 30, 2023. The company is also highly profitable, reporting net income of $640 million in 2023.
Over the past 17 years since the company’s IPO, Super Micro shares have gained about 11,506% compared to a 266% total return for the S&P 500 during that stretch. Those gains translate to a 32.3% compound annual growth rate for Super Micro, compared to a roughly 10.2% average long-term CAGR for the S&P 500 as a whole.
As a result, $10,000 in SMCI stock purchased at its IPO price in 2007 would be worth about $1.16 million today.
What Analysts Say
Even after those extremely impressive long-term returns, Wall Street analysts remain bullish on the high-end server maker. Among 18 analysts covering Super Micro stock, 67% have “buy” or “outperform” ratings compared to just 6% with “underperform” or “sell” ratings. The average analyst price target for SMCI stock is $948.50, suggesting 2.2% upside over the next 12 months compared to its April 8 closing price.
Bank of America analyst Ruplu Bhattacharya says Super Micro Computer is undeniably well positioned in the high-growth AI server market.
“We now expect industry revenues to grow from about $39 billion to about $200 billion between 2023-2027,” Bhattacharya wrote in a recent research note.
“SMCI’s competitive advantages include building block architecture which helps to quickly incorporate new technology and reduce time to market, relationships with leading AI CPU/GPU/ASIC providers including Intel, Nvidia and AMD, and its ability to customize configurations to specific customer applications and its liquid cooling offerings.”
Bank of America has a “buy” rating and $1,280 price target for SMCI stock, which closed at $928.50 on April 8.
CFRA analyst Shreya Gheewala also says it’s not too late to buy Super Micro shares given strong data center demand, heavy AI technology investments and new server upgrade cycles.
“SMCI is well positioned to benefit from growing adoption of generative AI, which requires significant increases in data center storage and computing power. We see strong prospects for new partnerships and design wins, particularly in the enterprise market,” Gheewala wrote in a recent research note.
CFRA has a “buy” rating and $1,191 price target for SMCI stock.
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How Much Would $10,000 Invested in Super Micro Stock at IPO Be Worth Today? originally appeared on usnews.com
