Super Micro Computer (NASDAQ:SMCI) is a company that has hogged plenty of headlines over the past year and not necessarily for the right reasons. The AI server maker’s auditor resigned over concerns regarding the company’s financial practices, and it also faced delisting from the NASDAQ for having failed to file its financial statements on time. But SMCI eventually made the filings before the deadline, and a special committee that looked into the financial practices concluded there was no evidence of wrong doing on the company’s part.
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With all that drama now out of the way, Raymond James analyst Simon Leopold reminds investors that the company boasts some impressive credentials.
“Supermicro is one of the fastest-growing companies in the AI infrastructure space, doubling revenue in FY24 and capturing 31% of branded AI server market share,” Leopold said.
That growth has been fueled by a massive uptick in demand for AI-accelerated servers, particularly from hyperscalers and cloud giants building out AI clusters at scale. As a result, Supermicro is rapidly expanding its footprint in the broader server market.
The fact SMCI has catered more to hyperscale and cloud service providers, as well as large IT and technology-centric organizations, rather than traditional enterprise IT customers, makes sense given the company’s business model emphasizes customization and cost efficiency over comprehensive, turnkey solutions supported by services and financing. This focused approach has been a “key factor” in establishing Supermicro as a leading supplier of AI-accelerated servers, which now account for over two-thirds of its server revenue.
Additionally, Supermicro was among the early adopters in developing liquid cooling technologies, a move that has “proven to be particularly vital” in supporting the latest generation of GPUs used in AI-driven workloads.
Leopold also points out that Supermicro stands out by operating at the intersection of an OEM (Original Equipment Manufacturer) and an ODM (Original Design Manufacturer). Essentially, it has carved out a “sweet spot” between traditional branded IT providers like Dell and HP Enterprise, and contract manufacturers such as Quanta. It blends large-scale manufacturing capabilities with advanced engineering and the flexibility to deliver highly tailored platforms.
Unlike the major OEMs, Supermicro does not offer alternative consumption models like as-a-service solutions, nor does it provide services such as consulting or financing at a comparable level. However, in contrast to its larger competitors, as noted above, Supermicro offers a much higher degree of customization in build specifications, providing a wide range of options for chassis, motherboards, and CPUs.
Moving forward, Leopold thinks all the above sets up the company for further growth.
“In our view, Supermicro is uniquely positioned to continue capitalizing on the growing demand for AI accelerated servers and solutions, owing to its ability to offer highly customized and flexible solutions, as well as its ability to offer very competitive pricing relative to its incumbent OEM peers. Longer term, Supermicro’s position as the leading vendor of data center AI solutions may enable it to grow with adjacent customer verticals, particularly enterprise/SMB customers typically dominated by traditional OEM vendors like Dell and HPE,” the analyst summed up.
Investors seem to agree. SMCI shares skyrocketed 16% on Tuesday after Leopold launched coverage with an Outperform rating and a $41 price target. (To watch Leopold’s track record, click here)
Turning now to the broader Street view, where based on a mix of 6 Buys, 5 Holds and 1 Sell, SMCI boasts a Moderate Buy consensus rating. The $40.83 average price target roughly matches the Raymond James objective. (See SMCI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.