SMCI's Strong AI Demand & Key Strategic Partnerships: Analyst Raises Expectations

Susquehanna analyst Mehdi Hosseini reiterated a Neutral rating on Super Micro Computer, Inc. SMCI, raising the price target to $300 from $90.

The company recently reported better-than-expected Q4 earnings, with net sales of $2.18 billion versus $1.64 billion in the same quarter last year.

SMCI noted that ~52% of its revenue in the fourth quarter was from AI. 

The analyst adds that the company is gaining from higher system ASPs, which have been increasing consecutively for three years, driven by the strong demand for AI. 

The analyst notes that the company is benefitting from strategic partnerships with crucial Cloud/Enterprise solution providers while also executing in driving material upside to earning expectations. 

Regarding capacity enhancements, the analyst thinks that SMCI can support up to 4,000 racks per month of global manufacturing capacity. Malaysia is expected to come online in 12-15 months and double capacity. 

Hosseini adds that building 23 in the company's Silicon Valley campus is expected to add additional capacity. Further, SMCI is adding a site in San Jose to add another location in the Americas.

Based on the results, the analyst raised FY24 EPS to $18.80 from $12.48.

Hosseini also introduced FY25 EPS of $21.54.

However, Hosseini cautions that looming concerns in a competitive industry are now more material to SMCI than in the past.

The analyst adds that working capital continues to be critical to how SMCI can grow in FY24 revenue of ~$10 billion at the midpoint. 

Price Action: SMCI shares are trading higher by 2.6% to $273.21 on the last check Thursday.