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Super Micro to be added to S&P 500; Is there more upside room?


Super Micro to be added to S&P 500; Is there more upside room? By Investing.com

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AuthorVahid KaraahmetovicStock Markets

Published Mar 04, 2024 04:58AM ET

Investing.com — Super Micro Computer (NASDAQ:SMCI) is up more than 12% in premarket trading Monday, propelled by an announcement on Friday that it will be added to the benchmark S&P 500 index. The SMCI stock is the best-performing large-cap company this year, surging nearly 220% since January 1.

SMCI stock crosses $50 billion valuation after 220% YTD gain

On Friday, the S&P Dow Jones Indices announced its quarterly rebalancing moves, adding SMCI and Deckers Outdoor (NYSE:DECK) to the index, which will replace Whirlpool (NYSE:WHR) and Zions Bancorporation (NASDAQ:ZION). The changes are set to take effect prior to the market open on Monday, March 18.

The change, which aims to ensure that the index is more representative of its market cap range, comes on the back of a robust performance of the SMCI stock in 2024.

The artificial intelligence (AI) server maker saw its share price more than triple over the past two months, lifting its market valuation to over $50 billion amid an unprecedented boom in the AI market.

The demand for Super Micro’s offerings has been documented in the company’s latest quarterly report, which showed that its net sales more than doubled year-over-year. On a quarterly basis, sales surged 73%.

Furthermore, SMCI also hiked its revenue outlook for the fiscal 2024, lifting it to a range of $14.3 billion to $14.7 billion from the previously projected range of $10 billion to $11 billion.

Super Micro’s AI products

Similar to Nvidia (NASDAQ:NVDA), Super Micro’s role is important because it acts as a fuel supplier for the engines driving the AI era.

Specifically, SMCI specializes in providing servers and storage systems for data centers and major corporations. Unlike Nvidia and SK Hynix, which manufacture specific components like GPUs and RAM, Supermicro integrates these components into complete server racks tailored for large enterprise clients.

With corporate AI budgets experiencing significant growth, it’s no surprise that the San Jose, California-based company is attracting robust demand. This is because Supermicro’s servers are the platforms where AI projects are executed.

The company caters to a wide array of market sectors, yet its GPU-powered AI server solutions have become increasingly significant to its revenue stream.

Goldman initiates SMCI stock at Neutral

SMCI’s recent growth and its role in the AI expansion have not only attracted investors but also garnered trust from Wall Street analysts.

Last week, Rosenblatt nearly doubled the price target on the SMCI stock from $700 to $1,300, marking a new Street high.

Going forward, the broker expects the AI server manufacturer to see double-digit gains in market share gains in the coming years, up from the current mid-single digits, especially within the enterprise sector.

On Monday, Goldman Sachs analysts initiated research coverage on SMCI stock with a Neutral rating and a price target of $941, implying roughly 4% more upside from the Friday’s closing price.

“SMCI is a specialized supplier of high-performance server and storage systems with longstanding partnerships with key AI component suppliers (e.g., NVIDIA, AMD (NASDAQ:AMD), Intel (NASDAQ:INTC)) that have helped to transform itself into a leading AI infrastructure company,” the bank’s equity analysts said in a note to clients.

“SMCI is very well positioned to serve demand from AI CSP’s over the next few years, but serving enterprise AI infrastructure demand in the years after likely will be more competitive, particularly given more enterprise-focused IT hardware suppliers such as DELL and CSCO,” they added.

Super Micro to be added to S&P 500; Is there more upside room?

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