Super Micro Computer’s Impressive Growth: Is There More to Come?

A Look at Recent Performance and Future Prospects

Super Micro Computer stock (NASDAQ: SMCI) has experienced significant growth, increasing nearly 13-fold over the past three years. The stock surged from around $4 per share in February 2022 to about $56 today, bolstered by expanding demand for server systems driven by the rising wave of generative artificial intelligence. However, the stock did face challenges in 2024, dropping as much as 80% at one point due to regulatory concerns. This included delays in the company’s annual SEC report, allegations from short-seller Hindenburg Research about accounting issues, and the resignation of its public auditors. For those looking for potentially steadier returns, the High-Quality Portfolio has surpassed the S&P 500, delivering over 91% returns since its inception.

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Current Valuation and Future Earnings Potential

Super Micro stock currently trades at approximately 25 times its estimated trailing earnings and 15 times its projected FY’26 earnings, which end in June. Is this a sensible multiple? Yes, especially considering that the company is positioned for near doubling of its earnings from FY’24 levels in the coming years. Recently, Super Micro announced that it is on track to submit its delayed 10-K report to the SEC by February 25. Notably, a special board committee’s internal review found no evidence of fraud or misconduct. So far, the stock has risen 60% this year, hinting that the upward trend might continue.

Remarkable Past Performance

Super Micro is among the few stocks that have increased in value in each of the last four years, although it hasn’t consistently outperformed the market. Stock returns were 39% in 2021, an impressive 87% in 2022, an astounding 246% in 2023, and 7% in 2024. In contrast, the Trefis High-Quality (HQ) Portfolio, which includes 30 stocks, has proven to be less volatile and has comfortably outperformed the S&P 500 over the past four years. The HQ Portfolio provides better returns with reduced risk, offering investors a steadier path in a turbulent market.

Anticipated Revenue Growth

Super Micro is a leading provider of data center solutions, offering server systems, boards, networking solutions, management software, and more. For FY’25 (ending June 2025), it’s projected that revenue will grow nearly 60% to around $24 billion, as tech companies enhance their AI and computing capabilities. Notably, with Nvidia increasing production of its latest GPUs, demand for Super Micro’s servers is expected to rise significantly. The transition to AI models is shifting from text to multimodal systems, requiring more computing power and thus, driving greater demand for servers. The FY’26 revenue guidance was unexpectedly optimistic at about $40 billion, suggesting revenue growth rates could improve to around 70%.

Improving Profit Margins

With anticipated revenue gains, Super Micro’s adjusted net margins are also on the rise. They increased from about 6% in FY’22 to 9% in FY’24 due to better economies of scale and a shift toward premium products. Although gross margins faced challenges from higher production costs related to liquid-cooling systems, improvements are expected as the company enhances supply chain efficiencies. Fixed expenses such as R&D and general costs will likely grow at a slower pace than revenues, potentially leading to further margin expansion. Projections indicate that adjusted net margins could rise to approximately 13.5% between FY’24 and FY’27.

Valuation Outlook

If revenues grow about 3.6 times from FY’25 to FY’27, alongside margin expansion, earnings could increase approximately 5.5 times. Under these conditions, while the price-to-earnings (P/E) ratio might naturally decrease, prudent investors might anticipate that it stabilizes at about 12.5 times, rather than dropping to lower levels. This adjustment could signal a potential rise in Super Micro’s stock price to about $140 per share. The timeframe for achieving such returns may not significantly impact the outcome; whether it takes two or three years, the stock price could follow the upward revenue trajectory.

Investment Potential Comparison

To thoroughly evaluate Super Micro’s risk-to-reward ratio versus the S&P 500, please refer to our analysis of the 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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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.