Super Micro Computer Inc. (NYSE:SMCI) stock is in a great position that only looks better by closer inspection. The global information technology provider offers its clients rack-scale solutions, storage systems, and servers.
Despite recent stock rally, SMCI stock remains undervalued because of its Nvidia partnership and its prime Bay Area location.
A Closer Look at SMCI Stock
The expansion of the artificial intelligence sectors and long-term alliances with major tech firms like Nvidia, Intel and Advanced Micro Devices have propelled Super Micro Computer’s growth.
Nvidia and Super Micro Computer, for example, collaborate on projects to create cutting-edge solutions for AI applications.
Super Micro Computer gained notoriety for being the first to offer an OVX server for the large-scale development and management of Nvidia’s Omniverse Enterprise applications. As a supplier to Nvidia, SMCI appears to stand to gain more from Nvidia’s expansion.
Super Micro Computer upgrades its systems to handle data-intensive applications by incorporating Nvidia’s GPUs and technology.
The Grace Hopper Superchips, the Nvidia CG1, and the CG2 are a few of its ongoing initiatives. I am confident that Super Micro Computer can keep innovating and developing its technology to grow into the future, especially with its current resources and capacity to change quickly.
The organization benefits from the increasing demand for AI integration in various industries. Complicated AI models require high computational power, energy intensity, and scale variety.
Super Micro Computer can create servers that can handle complex AI tasks. In order to tackle the problem of high energy usage, it also creates liquid cooling technologies that enhance AI model efficiency.
Because of its Bay Area location, SMCI can stay up to date on the latest developments and offer cutting-edge products to meet the evolving needs of its clientele. Besides attracting talent, the area helps the company’s ties with top companies.
Valuation
Revenue growth for the company is expected to rise by 65% in FY2024 and by an average of roughly 30% in the years following.
From 2023 to 2032, the AI market is projected to expand at a CAGR of 19%. Super Micro Computer’s increased market share, rising demand for AI solutions, and adoption of the newest technological advancements will all contribute to this revenue. Over the past three years, Super Micro Computer’s operating margins have increased.
The operating income margin should rise by roughly 13—17% of the revenue. Given the company’s increased investment in technical breakthroughs, I anticipate a rise in capital expenditures.
The business also bought land close to its San Jose headquarters in January to build more facilities and support its long-term expansion.
Based on a 3% terminal growth rate, I discounted the free cash flow to its present value. The resulting weighted average cost of capital is 8.1%. Based on my estimation, the equity value per share of the company is $1,369, which is a 20.1% increase over the current stock price of $1,140.
The Bottom Line on SMCI Stock
One primary cause for concern is with the company’s supply chain. Super Micro notes in its most recent 10-Q report that some materials needed for its devices are only accessible from a few suppliers.
A product shortage could result from supply chain interruptions, which would affect Super Micro Computer’s earnings and business operations. Disruption plays a significant role in predicting how big Super Micro Computer will get in the future.
I believe Super Micro Computer can continue to grow and flourish in the industry because of its creative product range, expanding market share, and long-standing partnerships with major tech companies.
For this reason, I recommend buying Super Micro Computer, which has an intrinsic value of $1369.30 per share.
On the date of publication, Michael Que did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the biedexmarkets.com.com Publishing Guidelines.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
