Why Is Super Micro Computer Stock Trading Higher Monday?

Super Micro Computer Inc SMCI shares are trading higher after JP Morgan initiated coverage on the stock with an Overweight and a price target of $1,150.

Analyst Samik Chatterjee re-rated the stock, with the compute cycle at the forefront of the AI revolution. 

Super Micro is the leading company in the AI computing market, which is burgeoning with demand stemming from training AI models, Retrieval- Augmented Generation by Tier 2 CSPs and Enterprises, and eventually, AI inferencing workloads, as per the analyst. 

The analyst expected the leadership to continue, led by a balance of custom-built solutions and fast time to market, although the potential upside is more likely from rapid expansion in the AI Server market rather than expansion of the already premium valuation multiple.

The AI revolution, driven by Compute, is in its early stages, with demand primarily from large hyperscalers and Tier 2 Cloud Service Providers for AI model training, Chatterjee flagged. 

This demand will likely broaden to Tier 2 CSPs and Enterprises, eventually including investments in inference by the same groups, all supported by Compute’s growing capabilities and revenue TAM in AI processors and servers. 

The AI Server market, projected to exceed $200 billion by 2027-28, fuels optimism for the sector, especially for Super Micro, which disrupts the traditional server market with custom builds and quick market delivery, as per the analyst. 

He noted that Super Micro’s innovations in custom accelerators, networking, and efficient XPUs position it well for the generative AI growth wave, with forecasts suggesting a robust CAGR for revenue and earnings, the highest among hardware companies. 

This growth is partly due to Super Micro’s early lead in the AI server market and its expanding product offerings, including complete rack solutions and liquid cooling, to address the power constraints of AI data centers, Chatterjee stated. 

As per the analyst, the booming AI server market presents a $40 billion revenue opportunity for Super Micro by 2028, supporting its premium valuation despite current market volatility.

The stock gained over 860% in the last 12 months. Investors can gain exposure to the stock via Invesco S&P MidCap Momentum ETF XMMO and IShares U.S. Digital Infrastructure And Real Estate ETF IDGT.

Price Action: SMCI shares traded higher by 9.49% at $1,065.05 on the last check Monday.

Also Read: Super Micro’s Strategic Moves and AI Chip Alliances Catapults Stock, Enters S&P 500 Index

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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