Super Micro Computer (NASDAQ:SMCI) has demonstrated plenty of volatility in recent months, as indicated by its 24-month beta of 1.89. That’s far above its industry peers. While it’s been a bumpy ride for some investors, I still believe Super Micro can go a lot higher. Given its growth forecasts and huge potential within the Data Center sector, I’m bullish on the stock.
Understanding Super Micro’s Volatility
Super Micro’s volatility is due to several factors, including its exposure to dynamic industry trends and market conditions. In all honesty, we don’t truly know what the artificial intelligence (AI) revolution will mean for stocks. In many respects, we’re in unchartered territory.
Super Micro provides AI hardware solutions, including servers, workstations, and storage systems optimized for AI workloads, and AI now represents more than 50% of its revenue as of Fiscal Q3. It specializes in high-performance, open architecture with proprietary liquid cooling systems, offering scalable and efficient infrastructure to support AI training and inference tasks. This caters to the computational demands of machine learning and deep learning applications.
The Data Center segment is going through a significant period of change, with vast capital expenditures led by hyperscalers like Meta (NASDAQ:META) and Alphabet (NASDAQ:GOOGL). These tech giants are investing heavily in expanding their cloud infrastructure to support growing demands for computing power, storage, and AI capabilities. The cloud infrastructure market is currently valued at $270 billion.
Given that we’re very much in unchartered territory, the stock has risen and fallen on things like Nvidia’s (NASDAQ:NVDA) signal and sector commentary. For example, Super Micro gained considerably after Elon Musk said the company, along with Dell (NYSE:DELL), would provide servers for the supercomputer that his artificial intelligence startup xAI is building.
Moreover, while the consensus is that AI and data center spending will continue trending upward throughout the decade, some analysts have suggested that hyperscalers are frontloading their CapEx. This uncertainty has contributed to the volatility.
Can Super Micro Computer Differentiate Itself?
While Super Micro has surged over 1,000% in the last 18 months, it’s by no means the biggest player in its sector. In the Computer Hardware segment, Dell is king, with 51.46% of industry revenues over the past 12 months.
However, the data suggests that Dell is losing market share while Super Micro is gaining. Dell’s market share in the most recent quarter fell to 47.06%. Meanwhile, Super Micro’s market share over the past 12 months has been 5.87%. However, in the second-most-recent quarter, the figure was 6.03%, and in the most recent quarter, Super Micro’s market share stood at 8.14%.
The Computer Hardware segment isn’t synonymous with data centers, but the data provides an interesting insight into Super Micro’s growth.
So, how does Super Micro differentiate itself from the competition? Well, the company has focused on innovation and being first to market with state-of-the-art services and products.
The firm’s proprietary liquid cooling systems allow AI servers to operate with maximum efficiency, which is vitally important because of their demanding workloads. While other companies offer liquid cooling, it’s limited and only available in more sophisticated models. Likewise, Super Micro offers open architecture, which is preferable to partially closed systems for clients who want a customized solution.
EPS Forecasts for Super Micro Computer
Super Micro isn’t covered by as many analysts as the likes of Nvidia, and forecasts don’t extend as far into the future. However, the projections that do exist are very positive. According to 15 analysts, the consensus is for Super Micro’s earnings per share (EPS) to come in at $23.78 in 2024. That’s 101.37% year-over-year growth. Moving forward to 2025, projections suggest EPS of $33.73, and this will rise to $41.92 in 2026. Only eight analysts have provided their forecasts for 2026.
While the forecasting range is short, it does allow us to create a price-to-earnings-to-growth (PEG) ratio for the stock. Using the non-GAAP forward price-to-earnings ratio of 37.4x and the expected growth rate of 46.71%, we come to a PEG ratio of 0.8x (1.0x or lower is generally seen as undervalued). I’d suggest it’s very rare to come across a stock with such a low PEG ratio in this segment of the market.
Is Super Micro Computer Stock a Buy, According to Analysts?
On TipRanks, Super Micro Computer comes in as a Moderate Buy based on five Buys, four Holds, and zero Sell ratings assigned by analysts in the past three months. The average Super Micro Computer stock price target is $1,066.25, implying 19.75% upside potential.
The Bottom Line on Super Micro Computer
Super Micro Computer appears to be an irresistible force within the Data Center market, but volatility is considerable. The forecasting data suggests that the stock could push much higher, with a PEG ratio of just 0.8x and analysts’ forecasts inferring about 20% upside. I remain bullish on Super Micro stock and simply wish I bought more of it and did it earlier.
