Will Super Micro Computer be a Trillion Dollar Stock by 2030?

Super Micro Computer (SMCI -0.80%)also known as Supermicro, has disappointed a lot of investors over the past six months. On March 13, 2024, the server maker’s stock closed at a record high of $1,188.07 as its market capitalization reached $67 billion.

This marked a staggering 5,080% gain over the past four years. Supermicro’s shares had been on fire as it wowed investors with brisk sales of high-performance servers for the booming artificial intelligence (AI) market.

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But today, Supermicro shares are trading at about $420, with a market cap of $25 billion. It lost nearly two-thirds of its value amid concerns about its shrinking gross margin, allegations of a short seller, late filing of its annual report and reports of a possible investigation by the US Department of Justice (DOJ). It was a painful retreat for investors who had watched Supermicro’s previous rally, but could it overcome these challenges and become a trillion-dollar stock by the end of the decade?

Why did Supermicro stock go up?

Supermicro carved out a niche for itself by selling high-performance liquid-cooled servers. That made him a natural partner for Nvidiawhich offered its Supermicro GPUs to high-end data centers ahead of many other server manufacturers.

Supermicro controls a small portion of the server market compared to Dell Technologies and Hewlett Packard Enterprisebut its sales of dedicated AI servers have grown in recent years as companies have scrambled to upgrade their data centers to handle the latest AI applications.

From fiscal 2020 to fiscal 2024 (which ended June 2024), Supermicro’s revenue grew at a compound annual growth rate (CAGR) of 45% as adjusted earnings per share (EPS) grew at a CAGR of 68%. It now generates over half of its revenue from dedicated AI servers and Bank of America Analysts expect it to grow its niche market share from 10% to 17% over the next three years. Those numbers convinced many investors that Supermicro was a great AI play like Nvidia.

Why did Supermicro’s stock crash?

Supermicro has established a lead for the dedicated AI server market, but Dell and HPE are now ramping up production of similar high-end servers powered by Nvidia GPUs. Supermicro also sells its AI servers at a lower gross margin than its non-AI servers, so the rapid expansion of its AI server business is actually a double-edged sword.

That’s why Supermicro’s adjusted gross margin fell from 15.9% in fiscal 2020 to 14.2% in fiscal 2024. This contraction is worrisome because HPE and Dell are larger companies that can afford to sell their AI servers at lower margins.

In late August, short-selling specialist Hindenburg Research accused Supermicro of inflating its earnings with backorders. Supermicro denied the allegations, but delayed its 2024 fiscal year 10-K filing around the same time Hindenburg’s report was published because it needed “additional time” to evaluate its “internal controls over reporting financial”. The DOJ may be investigating Supermicro over this delay, according to reporting by The Wall Street Journalbut the DOJ has neither confirmed nor denied that report.

News of those potential failures triggered Supermicro’s steep decline over the past few months. Since Hindenburg has a vested interest in Supermicro doing poorly, investors should take the allegations with a grain of salt. However, Supermicro was previously removed from the list Nasdaq due to accounting issues in 2018 and was republished only in 2020 after a settlement was reached with the US Securities and Exchange Commission (SEC).

Where will Supermicro stock be in six years?

These unresolved issues could force analysts to rein in their long-term sales estimates. It’s also unclear whether it can maintain a stable gross margin while keeping pace with HPE and Dell in the growing AI server market.

But for now, Wall Street is still mostly bullish on Supermicro. Of the 20 analysts covering the stock, only one rates it a sell. From fiscal 2024 to fiscal 2026, analysts expect its revenue to grow at a CAGR of 46% as EPS (excluding the impact of its upcoming 10-for-1 stock split on September 30) grows at a CAGR of 39%.

Those are impressive estimates for a stock that trades at just 14 times this year’s earnings. Dell and HPE, which are growing much slower than Supermicro, trade at 16 and 10 times forward earnings, respectively. However, Supermicro’s valuations are still compressed by near-term macro, competitive and regulatory headwinds.

Could Supermicro Become a Trillion Dollar Stock?

In a best-case scenario, Supermicro could match consensus forecasts and grow its EPS at a robust 25% CAGR from FY2026 to FY2030. If that happens, and it trades at an earnings 25 times more bullish, its stock could rise approx. 465% and will grow its market cap to nearly $134 billion by the end of the decade. That would be more than double the all-time high, but it wouldn’t be scary to join the 12-zero club.

So instead of wondering if Supermicro will ever become a trillion-dollar AI stock, investors should see if it can overcome its current challenges. If it fails to stabilize its gross margin and counter short-selling and regulatory challenges, its stock could underperform its industry peers over the next six years.