Analysts revamp Super Micro stock price targets after 10% surge on revenue boost

Super Micro Computer (SMCI) stock surged about 10% in midday trading Wednesday after the AI server maker raised its quarterly revenue forecast, citing “increased demand for AI platforms” despite recent market concerns over AI financing.

The rally comes after a difficult week for AI stocks. Investors have been concerned about the massive cost of building data centers, particularly as companies such as CoreWeave (CRWV) rely heavily on debt to finance their expansion.

Super Micro works closely with chip makers like Nvidia (NVDA) and builds ready-to-use server hardware that supplies major cloud players like Microsoft (MSFT) and Amazon (AMZN). It also creates liquid and air cooling systems.

The company now expects fiscal first-quarter revenue of $18.5 billion to $19.5 billion, up from its previous forecast of $14.5 billion to $15.5 billion. The midpoint of the new guidance of $19 billion is roughly 27% above Wall Street’s previous consensus estimate of $14.99 billion.

Super Micro also raised its gross margin forecast to 12% to 12.5%, up from its earlier outlook of 10.4% to 10.8%, citing better customer mix and product mix.

The company is scheduled to report its full quarterly results on Nov. 3.

Wall Street reacts to Super Micro’s stronger AI demand

Bank of America raised its price target on Super Micro to $38 from $33 following the announcement, but maintained its Underperform rating, according to The Fly.

The bank remains cautious about the company’s profitability, citing pricing pressure in the AI server market, rising component costs and lower margins typically associated with large deals.

Still, BofA sees the stronger revenue outlook as an encouraging sign for competitors Dell Technologies (DELL) and Hewlett Packard Enterprise (HPE), suggesting that demand for AI infrastructure remains healthy.

Citi maintained its Neutral/High Risk rating and $45 price target for Super Micro stock.

Also read: Intel stock surges on JPMorgan upgrade after 14% weekly plunge

The bank noted that Super Micro’s updated outlook implies approximately 280% year-over-year revenue growth, compared with roughly 195% under its previous guidance.

Citi also estimated that the stronger revenue and margin forecasts could put quarterly earnings per share roughly 60% to 70% above previous expectations.

“Overall, we view the announcement as constructive for the broader server OEM ecosystem, including Dell and HPE,” Citi analysts wrote in a research note sent to TheStreet.

The firm said AI infrastructure is increasingly shifting from individual servers toward integrated rack-level systems, creating opportunities for companies that provide liquid cooling, networking and other data-center equipment.

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Super Micro still faces questions over profitability and cash flow

Despite the stronger outlook, Wall Street remains focused on whether Super Micro can turn its rapid revenue growth into sustained positive cash flow.

Citi said investors can focus on the durability of AI demand, particularly among neocloud customers, as well as financing conditions and deployment timelines.

Also read: CoreWeave stock plunges 12%, but Wall Street analyst says buy the dip

“We believe a key investor debate remains the timing and magnitude of free-cash-flow inflection,” Citi analysts wrote.

The bank also pointed to working capital and cash conversion as key issues heading into Super Micro’s Nov. 3 earnings.

Super Micro stock trades at around $35 and is up 22% year-to-date as of writing. 

Related: Cathie Wood buys $11.8 million of tumbling tech stock

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