Is Super Micro (SMCI) a $1,000 Stock? Wall Street Analyst Discusses

A Loop Capital analyst has lowered the price target for Super Micro Computer Inc stock from $1,500 to $1,000. This adjustment reflects the company’s efforts to restore its gross margin (GM) and operating margin (OM) to 14% and 10%, respectively, alongside investor concerns over the delayed filing of its 10-K report.

Despite these concerns, the analyst argues that speculation regarding Super Micro’s potential downfall is significantly overstated, suggesting that the company’s role in the generative AI server space is undervalued.

### Impact of 10-K Filing Delay on Market Sentiment

The delay in Super Micro’s annual report, announced in August due to a need to assess “its internal controls over financial reporting,” led to a substantial decline in its stock price, which has decreased nearly 20% over the past month. This delay occurred shortly after Hindenburg Research, a short-selling firm, disclosed its position against the company, alleging “accounting manipulation.” After peaking in mid-March, Super Micro’s shares have dropped drastically, losing approximately two-thirds of their value as a result of a prior surge driven by the AI sector boom.

It’s uncertain if the filing delay is directly connected to Hindenburg’s allegations. Additionally, the company did not amend previously reported fiscal results for the quarter ending June 30. Recent quarterly earnings reflected a decline in margins due to rising production costs and heightened competition from companies like Dell.

Super Micro had enjoyed significant success from the generative AI trend, with its valuation skyrocketing from around $4.4 billion at the beginning of 2023 to a peak of $67 billion in March. Nevertheless, the overall pace of AI stock growth has cooled since March, as investors have begun to realize that returns on investment in these areas may take longer to materialize than initially thought.

The 10-K filing delay has led to multiple downgrades and reductions in price targets from Wall Street analysts in recent weeks, further negatively affecting investor sentiment surrounding the stock.

### Potential for Recovery with Blackwell Technology

Despite recent challenges and the price target cut, the Loop Capital analyst remains optimistic about Super Micro’s prospects. They suggest that the company could achieve normalized revenue exceeding $40 billion.

Conversations with customers indicate a realistic path toward regaining margins above 14% and 10%, aided by NVIDIA’s forthcoming next-generation GPU architecture, Blackwell. The belief is that with this revenue growth and improved margin profiles, Super Micro could achieve a price-to-earnings (P/E) ratio of at least 20 times, resulting in normalized earnings per share (EPS) of $50.00.

Several “What If” scenarios have also been explored regarding Super Micro’s future performance, including the potential for maintaining revenue growth of $30 billion in the fiscal year 2025 while recovering to targeted GM and OM levels within the next four quarters. The analysis highlights Super Micro’s enduring position as a vital original equipment manufacturer (OEM) through the Blackwell cycle, expected to last until the end of 2026.

The competitive landscape shows that while other generative AI server vendors are entering the market, they do not provide the same high-margin services as Super Micro, such as rack integration and tuning. Consequently, customers are inclined to view the additional GM of 200-300 basis points paid to Super Micro as a likely outcome for Blackwell, which may help restore GM to levels above 14%.

Regarding the 10-K filing delay, the analyst perceives it as a minor obstacle and a reflection of a company managing rapid growth while focusing on operational execution.