Super Micro Computer Stock (NASDAQ:SMCI): The selloff is overdone

Super Micro Computer (SMCI), a provider of high-performance computing solutions and AI infrastructure, has seen its stock experience significant volatility. Shares of the AI ​​infrastructure company went parabolic in January 2024, only to collapse after joining the S&P 500 (SPX). While a correction was warranted, it is now a bit overextended, especially with recent impressive earnings guidance. I am bullish on Super Micro due to its lower price and promising catalysts.

Analysis of the income ratio

Super Micro ended fiscal 2024 with growing sales and promising guidance for the future. The company generated quarterly revenue of $5.31 billion, compared to $2.18 billion in the same quarter last year, an increase of 143%. Additionally, net income increased 82% year-over-year to $353 million.

Those results are good, but investors have become jittery because of tight profit margins. For context, Super Micro’s net income was $402 million in Q3 FY24, indicating a sequential decline of 12%. Meanwhile, the AI ​​beneficiary reported revenue of USD 3.85 billion in Q3 FY24, which means that Q4 revenue saw a sequential growth of 38%.

Profit margins are expected to continue to shrink in fiscal 2025, which has driven the overselling. Not even a 10-for-1 stock split could deter investors from rushing for the exits.

However, the guidance makes it difficult to justify how much the stock has fallen. Super Micro anticipates fiscal 2025 revenue of $26.0 billion to $30.0 billion, compared to $14.94 billion in fiscal 2024 revenue. Guidance suggests revenue may double year-over-year (at the end of top of the range), especially with the Super Micro’s tendency to exceed top expectations.

While the company did not provide guidance for net income, it should grow again year over year. The question is, by how much? Regardless, even if net income growth slows to 30-50% year over year, it still represents a good long-term opportunity.

Margins may improve over time

Super Micro Computer maintains its commitment to become the world’s largest IT infrastructure company and is well on its way to achieving this goal. With AI tailwinds still booming, Super Micro offers competitive pricing to gain market share.

The company is essentially trading higher profits for revenue. That’s a near-term problem that CEO Charles Liang expects to be resolved before the end of fiscal 2025. Current margin issues shouldn’t deter long-term investors who plan to hold their positions for more years.

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Evaluation is key

I sang a different tune about Super Micro Computer stock shortly before it joined the S&P 500. In that article, I expressed concern about its profit margins, consistent revenue growth rates, and valuation. Super Micro had a P/E ratio of over 80x when I wrote that article, indicating that the stock was priced perfectly.

Guidance suggests the hyper-growth will continue for at least another year, making it easier to feel bullish on the heel. Profit margins have shrunk, but so has valuation. The stock now trades at a much lower P/E ratio of 31.6x, making it easier to reject lower profit margins. If Super Micro were still trading above an 80x P/E ratio, I’d be singing a different tune, but I think the current valuation presents a good buying opportunity.

A pre-stock-split frenzy can push stocks higher

The stock split was a success this year. Nvidia ( NVDA ), Broadcom ( AVGO ), Chipotle ( CMG ), and Walmart ( WMT ) are some of the companies that have generated more demand for their stock due to stock splits.

While SMCI’s stock split announcement did little to stem a 20% post-earnings slide, this split may spark momentum as the date approaches. Super Micro Computer will initiate a 10-for-1 stock split on October 1, 2024.

Additionally, if Nvidia reports other strong earnings on August 28, Super Micro’s stock could rise with it, building momentum as the split date approaches, potentially drawing more investor interest.

Stock splits do not increase the intrinsic value of a company, but they normally do a good job of attracting new investors. A lower price per share will also increase options trading activity, which may lead to more dramatic price swings for Super Micro.

According to analysts, is Super Micro Computer stock a buy?

Super Micro Computer is currently rated a Moderate Buy based on analyst ratings. The stock currently has five buys, five holds and one sell rating from analysts. The (SMCI)a provider of high-performance computing solutions and AI infrastructure, has seen its stock experience significant volatility. Shares of the AI ​​infrastructure company went parabolic in January 2024, only to collapse after joining the S&P 500 (SPX). While a correction was warranted, it is now a bit overextended, especially with recent impressive earnings guidance. I am bullish on Super Micro due to its lower price and promising catalysts. Looking at the earnings report Super Micro ended fiscal year 2024 with growing sales and promising guidance for the future. The company generated quarterly revenue of $5.31 billion, compared to $2.18 billion in the same quarter last year, an increase of 143%. Additionally, net income increased 82% year-over-year to $353 million. Those results are good, but investors have become jittery because of tight profit margins. For context, Super Micro’s net income was $402 million in Q3 FY24, indicating a sequential decline of 12%. Meanwhile, the AI ​​beneficiary reported revenue of USD 3.85 billion in Q3 FY24, which means that Q4 revenue saw a sequential growth of 38%. Profit margins are expected to continue to shrink in fiscal 2025, which has driven the overselling. Not even a 10-for-1 stock split could deter investors from rushing for the exits. However, the guidance makes it difficult to justify how much the stock has fallen. Super Micro anticipates fiscal 2025 revenue of $26.0 billion to $30.0 billion, compared to $14.94 billion in fiscal 2024 revenue. Guidance suggests revenue may double year-over-year (at the end of top of the range), especially with Super Micro’s tendency to exceed top expectations. While the company did not provide guidance for net income, it should grow again year over year. The question is, by how much? Regardless, even if net income growth slows to 30-50% year-over-year, it still represents a good long-term opportunity. Margins may improve over time Super Micro Computer continues to become the world’s largest IT infrastructure company and is well on its way to achieving that goal. With AI tailwinds still booming, Super Micro offers competitive pricing to gain market share. The company is essentially trading higher profits for revenue. That’s a near-term problem that CEO Charles Liang expects to be resolved before the end of fiscal 2025. Current margin issues shouldn’t deter long-term investors who plan to hold their positions for more years. Valuation Is Key I sang a different tune about Super Micro Computer stock shortly before it joined the S&P 500. In that article, I expressed concern about its profit margins, consistent earnings growth rates and its valuation. Super Micro had a P/E ratio of over 80x when I wrote that article, indicating that the stock was priced for perfection. Guidance suggests the hyper-growth will continue for at least another year, making it easier to feel bullish on the heel. Profit margins have shrunk, but so has valuation. The stock now trades at a much lower P/E ratio of 31.6x, making it easier to reject lower profit margins. If Super Micro were still trading above an 80x P/E ratio, I’d be singing a different tune, but I think the current valuation presents a good buying opportunity. A split frenzy ahead of stocks may push stocks Higher stock splits have been a hit this year. Nvidia ( NVDA ), Broadcom ( AVGO ), Chipotle ( CMG ), and Walmart ( WMT ) are some of the companies that have generated more demand for their stock due to stock splits. While SMCI’s stock split announcement did little to stem a 20% post-earnings slide, that split may spark momentum as the date nears. Super Micro Computer will initiate a 10-for-1 stock split on October 1, 2024. Additionally, if Nvidia reports other strong earnings on August 28, Super Micro stock could rise with it, building momentum as the split date nears are approaching, potentially attracting more investor interest. Stock splits do not increase the intrinsic value of a company, but they normally do a good job of attracting new investors. A lower price per share will also increase options trading activity, which may lead to more dramatic price swings for Super Micro. According to analysts, is Super Micro Computer stock a buy? Super Micro Computer is currently rated a Moderate Buy with an estimated upside of 55.6% from current levels. The stock currently has five Buy ratings, five Hold ratings and one Sell from analysts. The highest price target of $1,500 per share suggests the stock can gain 138%. View More SMCI Analyst Ratings Super Micro Computer Stock Conclusion Super Micro Computer is in the right place at the right time as the AI ​​industry continues to thrive. Most investors praised the company’s revenue guidance but expressed concern about shrinking profit margins. However, management expects to resolve the profit margin issues by the end of fiscal 2025. Additionally, guidance implies that Super Micro can double its revenue year-over-year in fiscal 2025. The relatively low valuation is the icing on the cake for this. top performing AI stock. Investors have begun to realize the opportunity, as the stock is now up about 30% from the subsequent earnings decline. Nvidia’s upcoming earnings report and Super Micro’s upcoming stock split may fuel the stock further. Disclosure”>SMCI stock’s average price target of $978.50 implies upside potential of 55.6%. The highest price target of $1,500 per share suggests the stock can gain 138%.

See more SMCI analyst ratings

Conclusion on the stock Super Micro Computer

Super Micro Computer is at the right place at the right time as the AI ​​industry continues to thrive. Most investors praised the company’s revenue guidance but expressed concern about shrinking profit margins. However, management expects to resolve the margin issues by the end of fiscal 2025. Additionally, guidance implies that Super Micro can double its revenue year-over-year in fiscal 2025.

The relatively low rating is the icing on the cake for this top performing AI action. Investors have begun to realize the opportunity, as the stock is now up about 30% from the subsequent earnings decline. Nvidia’s upcoming earnings report and Super Micro’s upcoming stock split may fuel the stock further.

Disclosure