HomeBusinessHow soon will Super Micro Computers stock reach $1,500?

How soon will Super Micro Computers stock reach $1,500?

Super microcomputer (NASDAQ:SMCI) has been on a tear in 2024 and has already posted an outstanding gain of 216% as investors have bought shares of this server manufacturer in droves to take advantage of its excellent growth.

Supermicro’s meteoric rally has pushed its stock price to around $950. That almost matches the 12-month average price target of $949, ​​according to eighteen analysts who study the stock. The average price target suggests that Supermicro may not have more upside potential to offer. However, the Street high price target of $1,350 points to a 31% upside from current levels.

However, will Supermicro be able to subvert these expectations and get to $1,500 in the long run? If so, how soon can investors expect this milestone? Let’s try to find the answers to these questions.

Super Micro Computer is built for greater benefit

Supermicro’s stunning rally in 2024 explains why the stock now trades at almost 74 times earnings. That’s significantly higher than the company’s five-year average price-to-earnings (P/E) ratio of 16. However, as the following chart indicates, Supermicro’s net growth has soared in recent years. which justifies the rich income multiple it currently commands.

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SMCI EPS Diluted (TTM) chart

SMCI EPS Diluted (TTM) chart

Better yet, Supermicro’s earnings growth potential is so solid that its forward earnings multiples are substantially lower than its rolling price-to-earnings ratio.

SMCI PE Ratio ChartSMCI PE Ratio Chart

SMCI PE Ratio Chart

More specifically, analysts expect the company’s earnings to rise 87% to $22.10 per share in the current fiscal year. Also in the next fiscal year, Supermicro is expected to post a robust profit increase of 39% to $30.82 per share. The forecast for the next five years also remains solid, with consensus estimates predicting Supermicro’s revenues to grow 48% annually.

Supermicro ended the previous fiscal year with an adjusted profit of $11.81 per share. Applying the projected five-year annual growth rate of 48% to last year’s earnings, Supermicro’s operating income could rise to just under $84 per share over the next five years. The Nasdaq-100 has a forward earnings multiple of 27, and assuming Supermicro trades at a similar multiple after five years (using the index as a benchmark for technology stocks), its stock price could reach $2,268 within the next five years.

That’s well above the $1,500 mark we’re trying to find. However, if we roll back a year and calculate Supermicro’s potential earnings after four years using the data mentioned above, operating income could rise to just over $56 per share. Multiplying the estimated four-year earnings by the Nasdaq’s forward earnings multiple of 27 points gives the stock price a value of $1,512.

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So the $1,500 milestone could arrive for Supermicro within the next four years, assuming management doesn’t implement a stock split. However, don’t be surprised if this figure is reached sooner, as Supermicro moves to capitalize on the fast-growing artificial intelligence (AI) server market, which could help it achieve faster earnings growth.

This major catalyst could boost net growth

The rate at which analysts expect Supermicro’s profits to grow may not take into account the company’s growing manufacturing capacity, which could see it deliver stronger-than-expected growth. This is evident from the fact that the company’s revenue is expected to rise to just over $22 billion after a few fiscal years.

SMCI revenue estimates for the current fiscal yearSMCI revenue estimates for the current fiscal year

SMCI revenue estimates for the current fiscal year

However, Supermicro has expanded its capacity to support $25 billion in annual sales. It will come as no surprise that the company is selling out all of its sales capacity, as its manufacturing capacity utilization rate was 65% in the previous quarter and management pointed out that remaining capacity is filling up quickly. But more importantly, Supermicro is taking initiatives to further increase its production capacity.

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That’s the right thing to do, considering that the size of the AI ​​server market could grow sixfold by 2023 to $150 billion by 2027. As such, there’s a possibility that Super Micro Computer’s growth could be higher than what analysts say predict, and that’s why this AI stock could reach its $1,500 stock price target sooner than the four-year time frame discussed above.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

How soon will Super Micro Computers stock reach $1,500? was originally published by The Motley Fool

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