Super Micro Computer Inc. finds itself at a juncture as its soaring stock faces the prospect of a significant downturn, potentially bringing an end to its longest winning streak in over seven years.
Over the past month, the server maker’s shares have skyrocketed by nearly 200%, culminating in an astonishing 900% surge over the past year, propelled by the buoyant sentiments of Wall Street surrounding Super Micro’s prospects in the artificial intelligence (AI) domain.
However, according to Aaron Rakers of Wells Fargo, this fervor might already be fully priced into the stock.
In afternoon trading, Super Micro’s stock witnessed a downturn of around 17%, poised to break a nine-session winning streak – a feat not seen since a similar streak concluded on August 1, 2016, according to Dow Jones Market Data. This potential decline could mark the most substantial one-day percentage drop since August 9, 2023.
Rakers, initiating coverage of Super Micro shares with an equal-weight rating, set a $960 target price on Friday. He observed that the stock appears to be factoring in a trajectory toward earnings exceeding $40 per share by 2025.
Despite acknowledging the stock’s commendable “AI-fueled fundamental momentum,” Rakers advocates for prudence due to the already lofty valuation.
The analyst commends Super Micro’s achievements, crediting the company’s emphasis on “engineering-first differentiation.” Historically, the company has allocated a significant portion of its workforce, ranging from 40% to 50%, to research and development roles.
Rakers is optimistic about the sustainability of Super Micro’s “engineering-first culture,” particularly in light of an anticipated rise in silicon diversity and overall data-center complexity.
The significance of Super Micro’s liquid-cooling offerings is underscored, especially given the heightened power demands of AI workloads. Rakers views the integration of liquid cooling with the company’s power supply development as a competitive edge.
Although liquid cooling presently makes a modest contribution to Super Micro’s deployments, the company has noted interest from approximately 20% of its data center clients in the evolution and necessity of liquid cooling.
Rakers suggests that this could result in a 10% to 20% enhancement in average selling prices for liquid-cooled systems compared to air-cooled systems.
While Super Micro has enjoyed an exceptional rally, concerns loom over a potential correction, with analysts warning that much of the anticipated future growth, particularly in the AI sector, may already be factored into the stock price.
