- Super Micro Computer stock gains once again on Wednesday.
- SMCI is scheduled to enter the S&P 500 on March 18.
- SMCI stock has risen more than 1,000% in the last year.
- Argus gives SMCI a $1,350, Street-leading price target.
Super Micro Computer (SMCI) continued its 2024 rally on Wednesday, closing up 3.1% to $1,124.70. Despite having possibly the dumbest name in all of tech, Super Micro Computer is already up more than 300% so far in 2024 as Wall Street drowns the San Jose-based company in praise.
The primary reason that investors have glommed onto SMCI stock recently is that the company is now slated to join the S&P 500, which forces the world’s largest index funds to hold shares in Super Micro Computer. The company will replace Whirlpool (WHR) in the index.
The S&P 500 and the NASDAQ both gained a little better than 0.5% on Wednesday as markets were jovial following comments from Federal Reserve Chair Jerome Powell concerning interest rate cuts.
Super Micro Computer Stock News
As a maker of servers specialized for artificial intelligence (AI) use cases, Super Micro Computer has a market cap of $60 billion, about four times the valuation necessary to be included in the S&P 500. The company had not been added before, because it has only recently achieved such a valuation.
SMCI stock has risen more than 1,000% over the past year as its profits continued to climb. The company grew adjusted EPS more than 500% over the past two years. That is even better than Nvidia (NVDA), the premier AI stock, which has gained 265% in that time. Like Nvidia, Super Micro Computer is a pick-and-shovel play.
Companies intent on developing new applications in the AI realm require GPUs from Nvidia to get the job done. Super Micro Computer then creates servers and storage products that are purpose-built for GPU-focused architectures, as well as software to manage them. Interestingly, both companies were founded in California in the same year – 1993.
As the AI sector sees massive growth over the next few years, Wall Street expects Super Micro Computer to benefit greatly.
"SMCI is very well positioned to serve demand from AI over the next few years,” wrote analysts from Goldman Sachs in a research note this week. However, the team said Cisco (CSCO) and Dell (DELL) are expected to become more competitive after several years, which should slow down Super Micro Computer’s blistering growth.
Goldman Sachs gives SMCI stock a neutral rating since it has already garnered a heady forward-looking valuation. Argus, on the other hand, posted the Street high price target for SMCI this week at $1,350.
"In our view, Super Micro is a leading computer and server provider for the age of generative AI," wrote Argus lead analyst Jim Kelleher. “Although the SMCI shares are not inexpensive, we believe prospects for near-term and long-term growth justify investment in the shares at current levels".
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
Super Micro Computer stock forecast
SMCI stock ricocheted off the 61.8% Fibonacci Extension on the daily chart. This Fibo level comes in just below $1,170. A break above that level will allow bulls to make a lunge toward the 78.6% Fibo, which is placed just under $1,300.
SMCI stock is already overbought on the Relative Strength Index (RSI) but not worryingly so. The RSI clocks in at 72 on Wednesday.
Bulls should only get worried if the SMCI price action moves below the prior range high from February 16 near $1,078. The 20-day Simple Moving Average (SMA) should hold up if SMCI experiences a pullback. The 20-day SMA is nearby the 23.6% Fibo at $875, which offers it a fuller portion of respect from the trading community.
SMCI daily stock chart
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