Super Micro Computer (SMCI 4.42%) stock climbed again Monday. The company’s share price closed out the daily trading session up 4.4%, according to data from S&P Global Market Intelligence. Earlier in the session, it had been up as much as 9.4%.
Before the market opened this morning, Northland Capital Markets published a bullish update on Super Micro. Analyst Nehal Chokshi’s note maintained an “outperform” rating on the stock and raised the firm’s one-year price target from $625 per share to $925 per share. Based on the server specialist’s stock price of roughly $773 per share at today’s market close, hitting Chokshi’s target would imply upside of approximately 20% over the next 12 months.
Is the red-hot AI stock a buy right now?
Super Micro Computer is a provider of high-performance servers and storage solutions. In conjunction with the rise of artificial intelligence (AI), the business has seen demand for its technologies soar.
In the second quarter of the company’s current fiscal year, which ended Dec. 31, Super Micro’s revenue more than doubled year over year to hit $3.66 billion. Meanwhile, non-GAAP (adjusted) earnings came in at $5.59 per share — up 71.5% compared to the prior-year period. The rapid-growth acceleration has helped push the stock up 759% over the last year.
Super Micro is currently trading at roughly 35.6 times this year’s expected earnings. Jump ahead to its next fiscal year, and the average-analyst estimate expects the business to record earnings of $27 per share — working out to a forward price-to-earnings ratio of 28.6.
The company’s valuation has become substantially more growth-dependent in conjunction with the recent run-up for the stock, but it’s not necessarily unwarranted. With AI taking off, Super Micro is winning business in an important technology category.
Admittedly, it’s hard to predict exactly what the company’s business trajectory will look like over the long term, but the recent surge in demand for Super Micro’s high-performance rack scale servers is a promising sign. While it’s possible that new competitors will move in on the company’s turf or that some key customers will pivot to internally developed solutions over time, the business is rapidly gaining market share at what appears to be a major technological inflection point.
If you’re concerned that excitement surrounding AI will taper off in the near term, or that the emerging tech trend will soon be subject to cyclical swings, the stock may not be a great fit. Similarly, if the company’s earnings multiples look too high given some uncertainty about the long-term demand outlook, it probably makes sense to stay on the sidelines.
But for risk-tolerant investors looking for long-term growth plays in the AI space, Super Micro stock still holds promise at current levels.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.