How Super Micro Computer Stock Can Rise To Over $140

Super Micro Computer stock (NASDAQ: SMCI) has had a solid run, rising by almost 13x over the past three years from levels of about $4 per share in February 2022 to about $56 presently, driven by surging demand for server systems led by the generative artificial intelligence wave. Notably, the stock witnessed a massive selloff in 2024 – seeing a drawdown of as much as 80% at one point – amid regulatory concerns which included the company’s delay in filing its annual report on form 10-K with the SEC, accusations from short-seller Hindenburg Research regarding accounting irregularities and also due to the resignation of the company’s public auditors. Separately, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

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Super Micro stock trades at just about 25x estimated trailing earnings and 15x estimated FY’26 earnings (fiscal years end June) at the current price level. Is this a reasonable multiple? Sure is!  Especially if you consider that the company’s earnings have the potential to grow by almost 2x from FY’24 levels in the next few years. There are signs that the company’s governance-related overhang could also ease. Along with its recent Q2 update, Super Micro confirmed that its plan to submit a delayed 10-K report to the Securities and Exchange Commission by Feb. 25 was on track. Separately, SMCI had indicated a few months ago that it conducted an internal probe led by a special board committee that included attorneys and a forensic accounting firm and found no evidence of fraud or misconduct by management. The stock remains up 60% so far this year, and there’s a possibility that the strong run could continue. Here’s why.

SMCI Stock Has Done It In The Past

SMCI is one of a handful of stocks that have increased their value in each of the last 4 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 39% in 2021, 87% in 2022, 246% in 2023, and 7% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Why Revenue Growth Is Set To Pick Up

Super Micro Computer is a data center solutions provider, which sells server systems, server boards, storage, networking solutions, management software, and installation and maintenance services. SMCI is projected to grow its revenue by close to 60% in FY’25 (which ends June 2025) to levels of about $24 billion, per consensus estimates, as data center-related spending remains strong with tech companies boosting their AI and accelerated computing capacity. There is a possibility that sales could grow at a stronger pace. Nvidia is slated to ramp up production of its latest Blackwell GPUs, and this could, in turn, scale up demand for SMCI’s servers which are used to deploy the latest GPUs. Moreover, AI models are increasingly multimodal – moving from just text processing to working with speech, images, video, and 3D – calling for higher computing power and consequently higher demand for servers and computing capacity. The company’s FY’26 revenue guidance (ending June 2026) was much stronger than expected – coming in at about $40 billion, which means that revenue growth rates are set to improve to 70% in FY’26.

Although the server market is commoditized, Super Micro does have some competitive advantages, given that its products are seen as being more customizable and more energy efficient than rivals. Super Micro’s customers are also likely to opt for more premium products. For example, the company estimates that costly liquid-cooling systems for servers, which were relatively rare in the pre-AI era, will be installed in 30% of server racks it ships next year. The company is also steadily boosting its production capacity.  If the company can grow its sales by another 35% in FY’27, this would take sales to about $54 billion for that year. This would translate into a growth rate of about 3.6x over three years.

Looking for more companies that can benefit from increased digitization and AI deployment? See our analysis of Internet Infrastructure Stocks

Margins Could Expand 

Combine this better-than-anticipated revenue growth with the fact that Super Micro’s adjusted net margins (net income, or profits after all expenses and taxes, calculated as a percent of revenues) are on an improving trajectory – they grew from levels of about 6% in FY’22 to about 9% in FY’24 as the company sees better economies of scale and a more favorable product mix skewed toward more premium products. The company has seen its gross margins face some pressure in recent quarters as it sells a higher mix of liquid-cooling systems, which are proving expensive to produce. But things could pick up as it eventually builds out a more efficient supply chain for these servers. Moreover, the company’s key fixed costs such as research and development and selling and general expenses are expected to grow at a slower pace than its revenues and this could improve margins further. Considering this, it may be reasonable to assume that Super Micro’s adjusted net margins could improve by at least 1.5x between FY’24 and FY’27 to about 13.5%.

Valuation Multiple Could Contract At A Slower Pace

If revenues grow by about 3.6x between FY’25 and FY’27, with margins expanding by about 1.5x over the same period, this would imply that earnings can grow by ~5.5x. Now if earnings grow 5.5x, the P/E multiple will shrink to about a fifth of its current level, assuming the stock price stays the same. But that’s exactly what Super Micro investors are betting will not happen! If earnings expand 5.5x over the next few years, instead of the P/E shrinking from around 25x presently to under 5x, we think that the multiple could stand at about 12.5x.  This could make an over 2.5x rise in Super Micro stock a real possibility in the medium term – with the stock rising to levels of about $140 per share.

What about the time horizon for this high-return scenario? In practice, it won’t make much difference whether it takes 2 years or 3 – as long as Super Micro is on this revenue expansion trajectory with margins trending up, the stock price could respond similarly. Has Super Micro’s risk-to-reward trade-off been superior to the S&P 500? See our analysis of Super Micro Computer Sharpe Ratio

[1] Returns as of 2/19/2025
[2] Cumulative total returns since the end of 2016

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