Nvidia might be the chip stock on everyone’s lips this year but it’s not the only semi name piling on the gains. In fact, while Nvidia’s gains have been hugely impressive, they are not quite as mighty as those notched by Super Micro Computer (SMCI), whose shares are up by 216% year-to-date (232% over the past year),
The server and storage systems specialist has been reaping the rewards not merely from AI hype but from the outsized demand for AI servers. But now, Nomura analyst Donnie Teng thinks maybe expectations are set too high. “After Supermicro’s strong guidance for CY4Q23-CY1Q24, we believe Supermicro’s performance potential changed from ‘easy to beat low market expectations’ in CY4Q23 to ‘less room to beat already-high market expectations” in CY1Q24, given the uncertainties surrounding: 1) the gradually easing of CoWoS-S supply in CY2024F; and 2) potential transition period between Hopper and Blackwell GPUs in CY2H24F,” the analyst explained.
While Teng believes Supermicro’s liquid cooling solutions give it a competitive edge and should bolster its gross profit margin (GPM), the “limited order visibility” caused by the uncertainties highlighted above may hinder its ability to achieve higher-than-expected sales.
As some liquid cooling projects have been deferred to later quarters, thus reducing the likelihood of a beat to the guide, Teng expects Supermicro’s June quarter sales will be “largely inline” with its outlook of $5.1-5.5 billion. That said, given that liquid cooling projects typically have high GPMs and there were still some shipments delivered, Teng thinks the company maintained its GPM within its long-term target range of 14-17%. This is down to Supermicro’s dominant market position and “better bargaining power,” while its main competitor appears less aggressive in pricing due to “low profitability.”
Nevertheless, despite its better positioning in liquid cooling solutions, order uncertainties still linger and thus Teng thinks the “near-term to mid-term outlook could be a mixed bag.”
So, ultimately, what does this all mean for investors? Teng downgraded SMCI’s rating from Buy to Neutral although his $930 price target remains as is, suggesting the shares have room for just a small 3% uptick over the coming months. (To watch Teng’s track record, click here)
Turning now to the rest of the Street, where based on an additional 5 Buys and 3 Holds, the stock claims a Moderate Buy consensus rating. Going by the $1,066.25 average target, a year from now, shares will be changing hands for an 18.5% premium. (See Super Micro Computer stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
