Up 18.65% on Monday, Super Micro Computer (NASDAQ:SMCI) stock continued its bull run and put more short sellers out of commission. At least this time it wasn’t just another short squeeze, since there was an actual news item pertaining to Super Micro Computer.
With that share-price push, Super Micro Computer stock stood firmly above $1,000. At the same time, nearly 20 million SMCI shares traded hands on Monday, which is an unusually high volume for a quadruple-digit stock.
Perhaps then there’s some merit to the idea that Super Micro Computer is the next NVIDIA (NASDAQ:NVDA). On the other hand, if you’re worried about NVIDIA’s valuation, then you should be equally concerned about SMCI stock.
Another day, another AI-fueled rally
Like NVIDIA, Super Micro Computer took an early position in a specific artificial intelligence (AI) hardware niche industry and rode it to the top. Whereas NVIDIA develops AI graphics processing units (GPUs), Super Micro Computer specializes in AI servers.
It’s probably not much of a stretch to claim that Super Micro Computer is, to a certain extent, riding on NVIDIA’s coattails. After all, it’s NVIDIA’s world in 2024, and we’re all just living in it. In any case, Super Micro Computer certainly isn’t shy about its kinship with NVIDIA.
“Using Supermicro application-optimized servers with NVIDIA GPUs makes it easier to fine-tune pre-trained models and for AI inference solutions to be deployed at the edge where the data is generated,” Super Micro Computer declared in a recent press release.
It’s almost as if Super Micro Computer’s management wants investors to believe it’s the next NVIDIA. At least Super Micro Computer’s financial results do bear some resemblance to those of NVIDIA.
To recap, in the second quarter of fiscal 2024, Super Micro Computer’s revenue grew 103% year over year to $3.66 billion. Furthermore, the company’s net income increased to $5.59 per share in Q2 FY2024, versus $3.26 per share in the year-earlier quarter.
In other words, Super Micro Computer isn’t just a speculative start-up with failing financials. The company has been consistently profitable and usually beats Wall Street’s quarterly EPS forecasts.
This doesn’t negate the other side of the argument though. There’s no doubt that SMCI stock continues to rally because the market is obsessed with AI. Even though Super Micro Computer’s revenue doubled year over year, its share price has certainly gone up more than two times.
Thus, Super Micro Computer now has a challenging task. For the current fiscal year, the company raised its revenue guidance from a range of $10 billion to $11 billion to a much higher range of $14.3 billion to $14.7 billion. Is it possible that the market already priced this lofty expectation into the shares?
Joining an elite club
Wells Fargo (NYSE:WFC) analyst Aaron Rakers evidently feels that that SMCI stock has indeed gotten ahead of itself. As Rakers put it, the stock is “already discounting solid upside.”
That may be the understatement of the year. Super Micro Computer’s trailing 12-month price-to-earnings (P/E) ratio is getting ever closer to triple digits, so it’s not inconceivable that any perceived positive news is already priced in.
Continuing to rake SMCI stock over the coals, Rakers also warned that it’s “highly susceptible to any indications of tempering GPU-based server demand.” Nonetheless, no cautionary tone from a Wall Street authority could prevent traders from panic-buying Super Micro Computer shares on Monday.
Beyond the usual AI mania, there was a company-specific catalyst that day. Super Micro Computer is being added to the S&P 500 (SPX).
This certainly adds a measure of prestige to the company. Moreover, it could put a floor on SMCI stock for a while as buyers of S&P 500 funds will effectively also be buyers of the stock.
What’s less certain is the effect adding Super Micro Computer will have on the S&P 500. Will it help or hinder the index to have more AI-market exposure? Only time will tell.
For now, all that’s known for certain is that the trend is the bulls’ friend. As Super Micro Computer’s share price climbs, analysts are scrambling to raise their price targets. For example, Rosenblatt Securities analyst Hans Mosesmann set a $1,300 price target on the stock.
At this rate, $1,300 might be a pessimistic call pretty soon. The S&P 500 inclusion undoubtedly favors buyers in the short term. For the long run though, value-conscious investors might want to cross SMCI stock off of their buy-and-sleep-easy list.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
