4 weeks ago
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OpenAI introduced its conversational intelligence application ChatGPT in November 2022. Since then, artificial intelligence (AI) has become one of the hottest investment themes on Wall Street, and AI stocks Super Micro Computer (NASDAQ: SMCI) and Nvidia (NASDAQ: NVDA) have been the best-performing members of the S&P 500 (SNPINDEX: ^GSPC).
Specifically, Supermicro and Nvidia saw their shares surge 650% and 1,030%, respectively, over the last two years as unprecedented demand for AI infrastructure led to phenomenal financial results. Consequently, both companies reset their soaring share prices earlier this year by completing 10-for-1 stock splits.
However, businesses are still in the early stages of building out their AI infrastructure, and Wall Street believes continued investments in supercomputing chips and servers will drive shares of Supermicro and Nvidia higher over the next 12 months. Here are price targets provided by The Wall Street Journal:
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Among the 20 analysts following Supermicro, the average price target is $67.50 per share. That forecast implies 41% upside from its current share price of $48.
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Among the 64 analysts following Nvidia, the average price target is $150 per share. That forecast implies 7% upside from its current share price of $140.
Here's what investors should know about Supermicro and Nvidia.
Super Micro Computer manufacturers high-performance computing platforms, including servers and full server racks, optimized for AI. The company handles most product development and assembly internally at facilities in Silicon Valley, and it uses electronic building blocks to rapidly build a broad range of servers featuring the latest chips. That often allows Supermicro to bring new products to market two to six months before its competitors.
In March, Rosenblatt analyst Hans Mosesmann wrote, "Super Micro has developed a model that is very, very quick to market. They usually have the widest portfolio of products when a new product comes out." That time-to-market advantage, coupled with broad product selection, has carried Supermicro to the forefront of the AI server industry, which is forecast to grow at 30% annually through 2033.
Supermicro reported mixed results in the fourth quarter of fiscal 2024 (ended June 30). Revenue increased 143% to $5.3 billion, but gross margin contracted almost 6 percentage points to 11.2%, and non-GAAP (generally accepted accounting principles) net income increased only 78%. Margin contraction may be a symptom of diminished pricing power amid increased competition, but management expects gross margin to normalize between 14% and 17% as liquid-cooled servers ship in higher volume toward the end of fiscal 2025.
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