Super Micro Poised for Expansion as Gross Margin Relates to Ease Internal Control Risks Assessed in: Analyst

Needham analyst Quinn Bolton initiated coverage on Super Micro Computer Inc (NASDAQ:SMCI) with a Buy rating and a $600 price target.

Bolton noted that the Super Micro is a “show me” story in terms of its margin recovery, justifying its multiple being priced lightly against its hardware rivals.

The analyst noted that the share price reflects most of the risk associated with the board’s review of internal controls.

Read also: Shares of NVIDIA, Micron, SMCI are down on Monday: What’s going on?

Bolton noted that Super Micro is a significant beneficiary of increased investment in AI infrastructure and projects a revenue CAGR of over 55% from FY2021 to FY26.

The analyst said Super Micro is currently involved in the implementation of some of the world’s leading AI clusters and entered fiscal 2025 with a record backlog.

Bolton noted that bearish gross margin trending toward single digits is too pessimistic despite the conservative margin trajectory, citing price competitiveness for larger liquid-cooled AI transactions.

The analyst noted that Super Micro, the first to develop rack-level liquid cooling solutions, has already shipped liquid-cooled racks to a handful of customers and is experiencing a rapid acceleration in customer demand for liquid-cooled solutions.

He noted that liquid cooling is an opportunity for the company to further increase its market share.

Super Micro has aggressively expanded its manufacturing capacity, including DLC ​​liquid cooling rack capacity in Silicon Valley and Taiwan. It will start production at its Malaysian campus in November, which will double production capacity in the long term, Bolton pointed out.

According to the analyst, these capacity expansion efforts and growth at emerging and sovereign CSPs should drive FY2025 revenues to $26 billion – $30 billion (+87% Y/Y).

Super Micro stock is up 80% over the past 12 months, despite losing 30% over the past 30 days due to the short Hindenberg report.

Investors can gain exposure to Super Micro through iShares Future AI & Tech ETF (NYSE:ARTY) and iShares US Digital Infrastructure and Real Estate ETF (NYSE: IDGT).

Price action: Shares of SMCI traded up 2.30% at $449.41 as of last check on Wednesday.

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