Shares of Super microcomputer (NASDAQ: SMCI)a provider of powerful server solutions for the artificial intelligence (AI) industrywere up about 5% at 1:30 PM ET on Monday after Northland Capital Markets analyst Nehal Chokshi raised his price target on Supermicro stock by nearly 50%.
What Chokshi said
Specifically, Chokshi raised his price target on Supermicro stock (already rated outperform and which Northland calls a “top pick” in AI) to $925 per share. The analyst noted that since Northland first recommended buying Supermicro in November, the share price has roughly tripled, despite earnings estimates only rising about 42%. They are now forecast to reach $27 per share by 2025.
For many investors, the discrepancy between expected earnings growth and the share price could be taken as a warning sign, but not for Chokshi.
Chokshi, quoted on StreetInsider.com Monday morning, said what’s more important than the actual price tag is the earnings multiple that investors seem willing to pay for Supermicro stock. This multiple has already more than doubled to 27 times expected 2025 earnings. Chokshi attributes this change to “investors’ recognition that Supermicro is a leader in providing Gen AI rack-scale servers,” and to the fact that it company has “sustainable” intellectual property that will make it a “fast-growing name.”
In this regard, Chokshi points out that “SMCI’s ROIC increased from ~15% from FY14 to FY21, to 18% in FY22 and 37% in FY23 (end of June Q).”
Are Supermicro Shares a Buy?
Not to overstate the point or anything, but if that’s on the company’s part Profit on invested capital has more than doubled in the last ten years, then maybe…