Shares of Super Micro Computer (SMCI 7.32%) were rallying big for the second day in a row on Tuesday, up 5.3% as of 12:46 p.m. ET.
The company didn’t disclose any new company-specific news today, but will appear at an industry analyst conference tomorrow. In addition, today’s rally was likely further fueled by a similar two-day rally for Nvidia, Super Micro’s close partner in artificial intelligence (AI) servers, which did have some positive news.
Following yesterday’s new product announcements at CES around AI PCs and autonomous driving, the AI chip giant received a buy rating and target price upgrade from Wall Street amid increasing AI-related optimism. Nvidia’s good day carried Super Micro along with it.
Nvidia is upgraded as a “best idea” in 2024
Today, Nvidia received a reaffirmation of a buy rating from Oppenheimer analyst Rick Schafer. In a note to investor clients, Schafer boosted price targets for four artificial intelligence “top picks” for 2024. These included Nvidia, with a $650 price target, along with positive notes on three other AI-related chip stocks, Marvell Technology, Broadcom, and Monolithic Power Systems.
In general, positive AI and Nvidia-related notes also filter down to Super Micro Computer, which has become a preferred server provider for AI-related applications. Last quarter, SMCI management noted that more than 50% of its revenue came from AI-related servers. That’s a higher percentage than rivals such as Hewlett-Packard Enterprise, which only got about 16% of its revenue from AI-related servers last quarter.
On a related note, it appears HP Enterprise is reportedly in talks to purchase router company Juniper Networks for about $13 billion, according to The Wall Street Journal. The deal seems a bit odd, as adding Juniper would add routing capabilities in between data centers, but doesn’t seem particularly relevant for AI servers themselves. So, to have a potential Super Micro competitor seemingly take its eye off the ball with a large acquisition and a reach for growth could also be seen as a positive for Super Micro.
Finally, Super Micro management will attend the CJS Securities 24th annual “New Ideas for the New Year” conference tomorrow. Investors may be anticipating good news or perhaps an earnings pre-announcement, which Super Micro has done in the past. However, Super Micro did not pre-announce its results last quarter.
A reasonably priced play on AI
Super Micro rallied over 246% in 2023, and is already up nearly 20% for 2024. That being said, the stock is still slightly below the all-time highs reached last August.
The stock certainly isn’t as cheap as it once was at 31 times trailing earnings. However, that’s actually cheaper than several other AI plays on a relative basis, and Super Micro management has already forecast 40%-plus growth this fiscal year.
Investors will get more color on the company’s trajectory tomorrow, with earnings coming up in a few weeks.
Billy Duberstein has positions in Broadcom and Super Micro Computer and has the following options: short January 2025 $110 puts on Super Micro Computer, short January 2025 $125 puts on Super Micro Computer, short January 2025 $130 puts on Super Micro Computer, short January 2025 $280 calls on Super Micro Computer, short January 2025 $380 calls on Super Micro Computer, and short January 2025 $85 puts on Super Micro Computer. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom, Marvell Technology, and Super Micro Computer. The Motley Fool has a disclosure policy.
