Excitement over artificial intelligence (AI) has propelled shares of Super microcomputer (NASDAQ:SMCI) And AI SoundHound (NASDAQ:SON) have increased by 506% and 96%, respectively, over the past year. But both stocks still enjoy a Buy consensus rating on Wall Street, and some analysts are predicting big gains for shareholders.
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Ananda Baruah has set Super Micro Computer a price target of $1,500 per share, implying an 81% upside from its current price of $830 per share.
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Gil Luria of DA Davidson gave SoundHound AI a price target of $9.50 per share, implying an 83% upside from its current price of $5.20 per share.
Investors should never place too much confidence in price targets, especially price targets set by individual analysts. But Supermicro and SoundHound deserve a closer look given their outperformance.
Here’s what investors should know.
1. Super microcomputer
Super Micro Computer designs and manufactures accelerated computing platforms including server and storage systems. The company sources its chips, memory and other hardware from partners such as Nvidia And Intel. Its computing platforms are purpose-built for enterprise and cloud data centers, and Supermicro is an early leader in the field. artificial intelligence server market (AI), according to Samik Chatterjee of JPMorgan Chase.
Success in the AI server market can be attributed to its building block development approach, which has two major advantages. First, Supermicro can bring servers with the latest chips to market faster than its competitors. Second, these building blocks come together in countless combinations, so Supermicro offers the IT industry’s broadest and most comprehensive portfolio of advanced server and storage solutions.
Supermicro reported strong financial results during the fiscal third quarter (ended March 31), but stocks plunged 15% because it missed consensus sales estimates. To be more specific, revenue increased 200% to $3.85 billion, but Wall Street was forecasting $3.95 billion in revenue. Despite this, investors may have overreacted given that non-GAAP net income still soared 308% to $6.65 per diluted share, easily exceeding the $5.78 per diluted share expected by analysts.
Additionally, CEO Charles Liang told analysts during the earnings conference call that Supermicro would have shipped more products in the quarter if supply had not been restricted. The company also raised its full-year outlook, so the midpoint of guidance now implies revenue growth of 110% in fiscal 2024. That beats analysts’ consensus estimate, which projects revenue to increase 106% to $14.6 billion.
The AI server market is expected to grow 47% annually between 2023 and 2028, according to JPMorgan. Meanwhile, Wall Street analysts expect Supermicro to grow its earnings per share by 47% annually over the next three to five years. This consensus estimate makes its current valuation of 46.7 times earnings reasonable. Supermicro shareholders should not count on an 81% gain on…
