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Super Micro Computer Inc. in the Midst of an AI Frenzy SMCI Stock Alert: Super Micro Computer Surges Higher in AI Frenzy

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SMCI stock - SMCI Stock Alert: Super Micro Computer Surges Higher in AI Frenzy

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Super Micro Computer (NASDAQ:SMCI) has surged almost 12% in response to the excitement over the Nvidia (NASDAQ:NVDA) earnings, making it one of the hottest stocks in 2024 with a 190% increase since the beginning of the year. The company’s stock saw a market capitalization reaching nearly $48 billion.

The market action is fueled by investors’ optimism about Super Micro’s proprietary liquid cooling technology, which allows the servers it assembles to utilize the fastest chips while maintaining optimal operating temperatures. This technology has the potential to reduce data center energy usage by 40% and produce quieter operations.

While bullish analysts like Rosenblatt Securities’ Hans Mosesmann are cheering for Super Micro, expecting the stock to reach $1,300 and noting the company’s increasing market share within its niche, others have expressed concerns about its valuation and profitability metrics. The estimated fiscal 2024 revenue of $9.2 billion and a profitability of less than 10% have raised questions about the stock’s nosebleed valuation, which is currently up to 70 times earnings.

Challenges and Competition

One of the pressing concerns for Super Micro is its poor cash flow performance. This necessitated the recent announcement of a convertible debt offering of $1.5 billion. In addition, the company faces stiff competition from industry stalwarts like HP Enterprise (NYSE:HPE), IBM (NYSE:IBM), Dell (NASDAQ:DELL), and numerous start-ups.

Future Projections

Analysts foresee that Super Micro’s volatility is likely to persist until there is a slowdown in data center demand. The scarcity of its tradeable shares, in comparison to its competitors, has been a boon particularly for small investors. Those adopting a more conservative approach might find interest in its convertible bonds.

As of this writing, Dana Blankenhorn had a LONG position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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