Super Micro Computer Inc. shares surged as much as 30% Wednesday, continuing a run that has seen the stock more than triple as demand for gear that can handle artificial-intelligence tasks has increased, but Wall Street skeptics urged caution.
Super Micro
SMCI,
shares surged more than 30% to an intraday high of $136.64 Wednesday, similar to the 31.2% gain after the company’s year-ago earnings report on May 4, 2022. The stock is already trading more than triple what it was 12 months ago, when it sold in the low $40-range, and is up 65% year to date. In comparison, the S&P 500 index
SPX,
is up 7.5% for the year, and down 1.1% from 12 months ago, and the Nasdaq Composite Index
COMP,
is up 16% year to date, but down 3.4% from 12 months ago.
Super Micro, and companies like Nvidia Corp.
NVDA,
that cater to data centers, have been swept up in the hype of artificial-intelligence technology amid the popularity of Microsoft Corp.
MSFT,
-backed OpenAI’s ChatGPT and other generative AIs, as all those large-language models and other types of AIs require a lot of computing power from data centers.
Super Micro manufactures certain parts and assembles servers and other clusters of equipment, and the San Jose, California, company reported soaring demand for AI-enabled gear on Tuesday afternoon despite previously warning about its earnings. Super Micro Chief Executive Charles Liang explained that component shortages pushed some orders out of the quarter, and provided an outlook far ahead of Wall Street’s expectations based on that backlog.
Wedbush analyst Matt Bryson said Wednesday he was concerned about the steep expectations the company has set, however.
“While we believe SCMI will outgrow the market (helped by a strong early position in AI), we are wary of the magnitude of management’s growth forecasts (20% or better) particularly in light of macro pressure on SMCI’s traditional enterprise compute business, continued pessimism around new CPU product rollouts, and potentially some headwinds if the scope of the Meta
META,
business (a significant positive contributor in FY’23) slips this year,” Bryson wrote.
Bryson, who has an underperform rating and $65 target price on Super Micro, was concerned about gross margins dipping toward 17%, and said it wasn’t surprising “as sales (and server volumes) came in below expectations, leaving factories underutilized.”
Susquehanna Financial analyst Medhi Hosseini, who had a neutral rating and raised his price target to $90 from $69, lamented that earnings beats that were common in fiscal 2022 have now turned into “misses and revenue pushouts.”
“In this context, managing cash flows for a company that is known as a mass customizer, and thus requiring significant commitment to working capital, becomes critical,” Hosseini said. The Susquehanna analyst also expressed concern over gross margins, that the forecast for the June-ending quarter was around 17%, 70 basis points lower than a year ago even with a forecast 44% revenue increase.
Of the five analysts who cover Super Micro, three have buy ratings, one has a hold, and one has a sell-grade rating, with an average target price of $128, according to FactSet data.
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