Super microcomputer (SMCI 4.42%) the stock climbed again on Monday. The company's stock price closed the daily trading session up 4.4%, according to data from S&P Global Market Intelligence. Earlier in the session, it had risen as much as 9.4%.
Before the market opened this morning, Northland Capital Markets issued a bullish update on Super Micro. Analyst Nehal Chokshi's rating maintains an “outperform” rating on the stock and raises the company's one-year price target from $625 per share to $925 per share. Based on the server specialist's stock price of around $773 per share at market close today, hitting Chokshi's target would imply an upside of around 20% over the next 12 months.
Is hot AI stock a buy right now?
Super Micro Computer is a provider of high-performance servers and storage solutions. Along with the rise of artificial intelligence (AI), the company has seen demand for its technologies skyrocket.
During the second quarter of the company's current fiscal year, which ended Dec. 31, Super Micro's revenue more than doubled year over year to $3.66 billion. of dollars. Meanwhile, non-GAAP (adjusted) earnings were $5.59 per share, up 71.5% from the prior-year period. Rapidly accelerating growth has helped send the stock up 759% over the past year.
Super Micro is currently trading at around 35.6 times this year's expected earnings. Fast forward to the next fiscal year and the average analyst estimates that the company will post earnings of $27 per share, which translates to a forward price-to-earnings ratio of 28.6.
The company's valuation has become considerably more dependent on growth in conjunction with the stock's recent rise, but that's not necessarily unjustified. As AI takes off, Super Micro is gaining business in an important technology category.
Granted, it's difficult to predict exactly what the company's long-term business trajectory will look like, but the recent surge in demand for Super Micro's high-performance rack servers is a promising sign. Although it is possible that new competitors will enter the company's territory or that some key customers will shift to internally developed solutions over time, the company is quickly gaining market share in what appears to be a major technological inflection point.
If you're concerned that enthusiasm for AI will fade in the short term or that the emerging technology trend will soon be subject to cyclical fluctuations, the stock may not be a good choice. Likewise, if the company's earnings multiples seem too high given some uncertainty about the long-term demand outlook, it probably makes sense to stay away.
But for risk-tolerant investors looking for long-term growth plays in AI, Super Micro stock still holds promise at current levels.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.