After skyrocketing last year, SMCI shares continued to outpace growth in 2024, rising 168% amid the ongoing unprecedented frenzy around generative artificial intelligence, bringing its market capitalization to a whopping $44.6 billion.
Analysts at KeyBanc Capital Markets this week began coverage of Super Micro Computer (NASDAQ:) with a Neutral rating, which remains well-positioned to benefit from long-term AI growth trends.
SMCI – AI Winner
Along with major tech leaders such as Microsoft (NASDAQ:) and Nvidia (NASDAQ:), Super Micro Computer is another name that has been making headlines since the current AI boom began.
The single most important reason for this is the company’s unique positioning in the artificial intelligence sector.
In particular, the company produces high-performance servers that play a key role in the continued expansion of the field of artificial intelligence. As demand for generative AI solutions has increased over the past year or so, the need for high-performance servers has also increased.
Recognizing these trends, investors flocked to SMCI stock, causing its stock price to surge nearly 250% in 2023.
On top of that, Super Micro has close ties to artificial intelligence darling Nvidia, which helps the company release its products faster than competitors like Dell Technologies (NYSE:) and HP (NYSE:).
Super Micro has consistently been among the first to receive artificial intelligence chips from Nvidia and AMD to help test server prototypes, according to analysts and industry experts.
This early access gave the company a competitive advantage, helping it become a key supplier of servers critical to generative AI applications.
remove advertising
.
Super Micro, located less than 10 miles from Nvidia and AMD’s California headquarters, is said to be able to “fabricate, assemble, test and ship a server rack” in just “a few weeks” if the necessary components are available.
SMCI is estimated to have 9% of the total end-user server market, covering both general purpose (GP) and AI servers.
In particular, in the artificial intelligence server segment, KeyBanc Capital Markets analysts predict that Super Micro has a leading market share of 23%. Next up is Wiwynn, which owns a 9% stake and focuses exclusively on the hyperscaler market.
KeyBanc Sees Balanced Risk Reward for SMCI Stock
On Tuesday, KeyBanc analysts issued a note announcing they had initiated coverage of SMCI stock with a Sector Weight rating.
Analysts believe the AI server maker is in an advantageous position “to capitalize on long-term AI growth trends, provided it can deliver fully customized, end-to-end IT solutions using its in-house engineering design expertise based on the latest technologies (at the fastest and in an effective way, in our opinion.”
“This set of capabilities may expand as artificial intelligence becomes more pervasive over time, advancing the accelerated computing theme, which includes relative custom GPU-based and other solutions, as well as non-x86 solutions,” including , which Jensen Huang, CEO of Nvidia, recently called “for $1.” ability to set the base to trillion.
KeyBanc said Super Micro’s 23% share of the AI server market is bolstered by the company’s competitive advantages, which are expected to maintain or even expand that market share in the future.
remove advertising
.
They note that AI-related rack sales revenue likely accounted for about 70% of the company’s revenue in the December 2023 quarter.
Analysts also note that while other OEMs are making progress, the market could exceed current forecasts if AI-driven demand leads to increased use of GPU-based computing over traditional CPUs. This scenario may arise, in particular, in optimistic situations where there is accelerated development of computing infrastructure.
In the long term, as the use and benefits of AI grow, the need for specialized IT infrastructure for accelerated computing across cloud service providers (CSPs) and enterprises could expand the total addressable market (TAM), supporting strong growth and bullish scenarios for SMCI stock. KeyBanc noted.
Analysts highlighted that key risks for SMCI stock include supply chain constraints, GPU pricing, competitive pricing, execution challenges in capacity expansion, potential demand decline or double bookings, limited AI/GenAI use cases and adverse macroeconomic factors.