Super Micro Computer (SMCI) , a provider of high-performance computing and AI infrastructure solutions, has seen its stock experience significant volatility. The AI infrastructure company’s stock went parabolic in January 2024, only to crash after it joined the S&P 500 (SPX) . While a correction was warranted, it’s a bit overextended now, especially with the recent impressive revenue guidance. I am bullish on Super Micro due to its lower price point and promising catalysts.

Analyzing the Earnings Report

Super Micro closed out Fiscal 2024 with soaring sales and promising guidance for the future. The company delivered $5.31 billion in quarterly revenue compared to $2.18 billion in the same quarter last year, a 143% increase. Additionally, net income increased by 82% year-over-year to reach $353 million.

Those results are good, but investors got nervous about narrow profit margins. For context, Super Micro’s net income was $402 million in Q3 FY24, indicating a sequential decline of 12%. Meanwhile, the AI beneficiary reported $3.85 billion in Q3 FY24 revenue, meaning that Q4 revenue saw a 38% sequential increase.

Profit margins should continue to narrow in Fiscal 2025, which prompted the excessive sell-off. Not even a 10-for-1 stock split could dissuade investors from rushing for the exits.

However, the guidance makes it hard to justify how far the stock has fallen. Super Micro anticipates Fiscal 2025 revenue ranging from $26.0 billion to $30.0 billion, compared to $14.94 billion in Fiscal 2024 revenue. Guidance suggests that revenue can more than double year-over-year (at the high end of the range), especially with Super Micro’s tendency to beat top-line expectations.

While the company didn’t offer guidance for net income, it should once again grow year-over-year. The question is, by how much? Regardless, even if net income growth decelerates to 30-50% year-over-year, it still presents a good long-term opportunity.

Margins Can Improve Over Time

Super Micro Computer remains committed to becoming the world’s largest IT infrastructure company, and it’s on pace to achieve that target. With AI tailwinds still booming, Super Micro is offering competitive prices to gain market share.

The company is essentially trading higher profits for revenue. This is a short-term problem that CEO Charles Liang expects to be resolved before the end of Fiscal 2025. Current margin issues shouldn’t be a deterrent to long-term investors who intend to hold onto their positions for multiple years.

The Valuation Is Key

I sang a different tune about Super Micro Computer stock shortly before it joined the S&P 500. In that article, I expressed concerns about profit margins, steady revenue growth rates, and its valuation. Super Micro had a P/E ratio above 80x when I wrote that article, indicating that the stock was priced for perfection.

Guidance suggests hyper-growth will continue for at least another year, which makes it easier to feel optimistic about the tock. Profit margins did narrow, but so did the valuation. The stock now trades at a much lower 31.6x P/E ratio, which makes it easier to dismiss smaller profit margins. If Super Micro still traded above an 80x P/E ratio, I would be singing a different tune, but I believe the current valuation presents a good buying opportunity.

A Pre-Stock Split Frenzy Can Push Shares Higher

Stock splits have been a hit this year. Nvidia (NVDA) , Broadcom (AVGO) , Chipotle (CMG) , and Walmart (WMT) are some of the companies that have generated more demand for their shares due to stock splits.

While SMCI’s stock split announcement didn’t do much to stop a 20% drop after earnings, that split can spark momentum as the date gets closer. Super Micro Computer will initiate a 10-for-1 stock split on October 1, 2024.

Additionally, if Nvidia reports another strong earnings on August 28, Super Micro’s stock could rise alongside it, building momentum as the split date nears, potentially attracting more investor interest.

Stock splits do not increase a company’s intrinsic value, but they normally do a good job of attracting new investors. A lower price per share will also increase options trading activity, which can lead to more dramatic price swings for Super Micro.

Is Super Micro Computer Stock a Buy, According to Analysts?

Super Micro Computer is currently rated as a Moderate Buy based on analyst ratings. The stock currently has five Buys, five Holds, and one Sell rating from analysts. The (SMCI) , a provider of high-performance computing and AI infrastructure solutions, has seen its stock experience significant volatility. The AI infrastructure company's stock went parabolic in January 2024, only to crash after it joined the S&P 500 (SPX) . While a correction was warranted, it’s a bit overextended now, especially with the recent impressive revenue guidance. I am bullish on Super Micro due to its lower price point and promising catalysts. Analyzing the Earnings Report Super Micro closed out Fiscal 2024 with soaring sales and promising guidance for the future. The company delivered $5.31 billion in quarterly revenue compared to $2.18 billion in the same quarter last year, a 143% increase. Additionally, net income increased by 82% year-over-year to reach $353 million.  Those results are good, but investors got nervous about narrow profit margins. For context, Super Micro’s net income was $402 million in Q3 FY24, indicating a sequential decline of 12%. Meanwhile, the AI beneficiary reported $3.85 billion in Q3 FY24 revenue, meaning that Q4 revenue saw a 38% sequential increase. Profit margins should continue to narrow in Fiscal 2025, which prompted the excessive sell-off. Not even a 10-for-1 stock split could dissuade investors from rushing for the exits.  However, the guidance makes it hard to justify how far the stock has fallen. Super Micro anticipates Fiscal 2025 revenue ranging from $26.0 billion to $30.0 billion, compared to $14.94 billion in Fiscal 2024 revenue. Guidance suggests that revenue can more than double year-over-year (at the high end of the range), especially with Super Micro’s tendency to beat top-line expectations. While the company didn’t offer guidance for net income, it should once again grow year-over-year. The question is, by how much? Regardless, even if net income growth decelerates to 30-50% year-over-year, it still presents a good long-term opportunity. Margins Can Improve Over Time Super Micro Computer remains committed to becoming the world’s largest IT infrastructure company, and it's on pace to achieve that target. With AI tailwinds still booming, Super Micro is offering competitive prices to gain market share.  The company is essentially trading higher profits for revenue. This is a short-term problem that CEO Charles Liang expects to be resolved before the end of Fiscal 2025. Current margin issues shouldn’t be a deterrent to long-term investors who intend to hold onto their positions for multiple years. The Valuation Is Key I sang a different tune about Super Micro Computer stock shortly before it joined the S&P 500. In that article, I expressed concerns about profit margins, steady revenue growth rates, and its valuation. Super Micro had a P/E ratio above 80x when I wrote that article, indicating that the stock was priced for perfection. Guidance suggests hyper-growth will continue for at least another year, which makes it easier to feel optimistic about the tock. Profit margins did narrow, but so did the valuation. The stock now trades at a much lower 31.6x P/E ratio, which makes it easier to dismiss smaller profit margins. If Super Micro still traded above an 80x P/E ratio, I would be singing a different tune, but I believe the current valuation presents a good buying opportunity.  A Pre-Stock Split Frenzy Can Push Shares Higher Stock splits have been a hit this year. Nvidia (NVDA) , Broadcom (AVGO) , Chipotle (CMG) , and Walmart (WMT) are some of the companies that have generated more demand for their shares due to stock splits.  While SMCI’s stock split announcement didn’t do much to stop a 20% drop after earnings, that split can spark momentum as the date gets closer. Super Micro Computer will initiate a 10-for-1 stock split on October 1, 2024.  Additionally, if Nvidia reports another strong earnings on August 28, Super Micro's stock could rise alongside it, building momentum as the split date nears, potentially attracting more investor interest. Stock splits do not increase a company’s intrinsic value, but they normally do a good job of attracting new investors. A lower price per share will also increase options trading activity, which can lead to more dramatic price swings for Super Micro.  Is Super Micro Computer Stock a Buy, According to Analysts? Super Micro Computer is currently rated as a Moderate Buy with 55.6% in projected upside from current levels. The stock currently has five Buy ratings, five Hold ratings, and one Sell from analysts. The highest price target of $1,500 per share suggests that the stock can gain 138%. See more SMCI analyst ratings The Bottom Line on Super Micro Computer Stock Super Micro Computer is in the right place at the right time as the artificial intelligence industry continues to thrive. Most investors liked the company’s revenue guidance but expressed concerns about declining profit margins. However, leadership expects to resolve profit margin issues by the end of Fiscal 2025. Furthermore, guidance implies that Super Micro can more than double its revenue year-over-year in Fiscal 2025. The relatively low valuation is the icing on the cake for this top-performing AI stock. Investors have started to realize the opportunity, as shares are now up by roughly 30% from their post-earnings drop. Nvidia’s upcoming earnings report and Super Micro’s upcoming stock split can fuel more momentum for the stock. Disclosure">average SMCI stock price target of $978.50 implies 55.6% upside potential. The highest price target of $1,500 per share suggests that the stock can gain 138%.

See more SMCI analyst ratings

The Bottom Line on Super Micro Computer Stock

Super Micro Computer is in the right place at the right time as the artificial intelligence industry continues to thrive. Most investors liked the company’s revenue guidance but expressed concerns about declining profit margins. However, leadership expects to resolve profit margin issues by the end of Fiscal 2025. Furthermore, guidance implies that Super Micro can more than double its revenue year-over-year in Fiscal 2025.

The relatively low valuation is the icing on the cake for this top-performing AI stock. Investors have started to realize the opportunity, as shares are now up by roughly 30% from their post-earnings drop. Nvidia’s upcoming earnings report and Super Micro’s upcoming stock split can fuel more momentum for the stock.

Disclosure