Super Micro Stock To $100?
Super Micro Computer stock (NASDAQ: SMCI) has experienced a remarkable performance, increasing by nearly 10x over the last three years from approximately $5 per share in June 2022 to about $47 currently, fueled by a surge in demand for server systems driven by the generative artificial intelligence movement. While the stock faced a significant selloff in 2024 – enduring a drawdown of up to 80% at one stage – due to regulatory worries and allegations from short-seller Hindenburg Research regarding accounting discrepancies, there are indications that the markets are lifting the governance-related discounts on the stock. Super Micro stock is currently trading at about 22x estimated FY'25 earnings and 17x estimated FY'26 earnings (fiscal years end June). Is this a justifiable multiple? It likely is, particularly when you consider that the company's earnings could potentially increase by nearly 5x from FY'25 levels in the upcoming years. The stock is up 57% this year so far, and there's a chance that this robust growth could persist. Here's why.
Revenue Growth Should Continue
Super Micro Computer is a provider of data center solutions, selling server systems, server boards, storage, networking solutions, management software, and installation and maintenance services. SMCI is expected to grow its revenue by nearly 48% to $22 billion in FY'25 (ending June 2025), with projections indicating a further 35% increase in FY'26 to around $30 billion as expenditure on data center-related services continues strongly, with tech companies enhancing their AI and accelerated computing capabilities. There's potential for even more robust sales growth. Nvidia plans to increase production of its most recent Blackwell GPUs, which could consequently boost demand for SMCI's servers utilized for deploying the latest GPUs.
Super Micro's server products have always been closely associated with Nvidia's GPU ecosystem and roadmap. The company has generally been quicker than competitors to provide server systems compatible with Nvidia's newest offerings, thanks to its modular system designs, advanced cooling and power infrastructure, and strong partnership with Nvidia for software and hardware integration. This positions SMCI to disproportionately benefit as Nvidia's Blackwell-based systems gain traction. The company serves as a key supplier of custom, high-density GPU servers for Nvidia's data center clients. Additionally, AI models are increasingly multimodal, progressing from mere text processing to integrating speech, images, video, and 3D, necessitating enhanced computing power and consequently greater demand for servers and computational capacity. Separately, if you seek better returns with less volatility than an individual stock, you might want to consider the High-Quality portfolio, which has outperformed the S&P, yielding over 91% returns since its inception.
While the server market is saturated, Super Micro maintains certain competitive advantages, as its products are viewed as more customizable and energy efficient than those of its competitors. Customers of Super Micro are also expected to favor higher-end products. For instance, the company anticipates that expensive liquid-cooling systems for servers, which were fairly uncommon prior to the AI era, will be installed in 30% of the server racks it ships next year. The company is also continually enhancing its production capacity. If it manages to elevate its sales by an additional 35% in FY'27, this would elevate sales to around $54 billion for that year. This would result in a growth rate of about 2.5x over three years.
Margins Could See Turnaround
Combining this better-than-expected revenue growth with the fact that Super Micro's adjusted net margins (net income or profits after all expenses and taxes, expressed as a percentage of revenues) could witness a notable turnaround. Although net margins have been declining, falling to around 6.4% in the first nine months of 2025 from about 10% in the same period last year, prospects for improvement could arise from economies of scale and a more favorable product mix leaning towards premium offerings. The company has experienced some pressure on its gross margins in recent quarters due to a higher proportion of liquid-cooling systems being sold, which are costly to manufacture. Liquid cooling technology has also posed challenges in terms of large-scale implementation, as concerns about reliability, including issues like leaks and condensation, have complicated matters.
However, Super Micro seems to have effectively tackled this technical hurdle, deploying these systems at a relatively large scale. Thus, the higher upfront costs and resulting margin pressures may ultimately serve as a worthwhile long-term trade-off, potentially granting the company a competitive edge in the AI hardware space. Additionally, the company's main fixed costs, such as research and development as well as selling and general expenses, are expected to rise at a slower rate than its revenues, which could further enhance margins. Given this, it might be reasonable to assume that Super Micro's adjusted net margins could double from FY'25 to FY'28, reaching approximately 12%. related: Why are SMCI margins so low?
Valuation Multiple Could Contract At A Slower Pace
If revenues increase by roughly 2.5x between FY'25 and FY'27, with margins expanding by about 2x during the same timeframe, this would indicate that earnings could rise by about 5x. If earnings indeed grow by 5x, the P/E multiple is expected to decrease to around a fifth of its current level, assuming the stock price remains unchanged. However, this is precisely what Super Micro investors are counting on not happening! Should earnings expand by 5x in the next few years, rather than the P/E falling from approximately 22x now to under 5x, we believe that the multiple could stabilize at approximately 10x. This could make an increase of over 2x in Super Micro stock a tangible prospect in the medium term – with the stock potentially reaching beyond $100 per share. What about the timeline for this high-return scenario? In reality, whether it takes 2 years or 3 won't make a significant difference – as long as Super Micro continues on this trajectory of revenue growth with margins on the rise, the stock price could respond accordingly.
That being said, it's crucial to balance this potential upside with a recognition of past issues. Super Micro has been scrutinized regarding corporate governance – including allegations of accounting anomalies, delays in SEC filings, and pressure from short-sellers. While the company has implemented measures to resolve these concerns, investors should consider this history as they assess the sustainability of the current growth narrative. While investing in individual stocks carries risks, the Trefis Reinforced Value (RV) Portfolio has surpassed its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices), delivering solid returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks has provided a responsive strategy to capitalize on favorable market conditions while minimizing losses during downturns, as elaborated in RV Portfolio performance metrics.
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