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Super Micro Computer (SMCI) has easily been among the most volatile large-cap stocks in 2024. After surging to all-time highs in March, the tech stock currently trades over 72% below record levels, valuing the company at a market cap of $18.9 billion.
Shares of the artificial intelligence (AI) server and storage solutions provider have continued to take a beating this week, plunging over 8% in a single trading session on Monday. This latest pullback was sparked by the late-Friday news that SMCI stock will soon be removed from the Nasdaq-100 Index ($IUXX), which it joined as recently as July.
SMCI will exit the tech-heavy Nasdaq-100 ahead of the open on Dec. 23 as part of its quarterly rebalancing, with red-hot stocks such as Palantir (PLTR) and MicroStrategy (MSTR) set to join. That means institutional investors who hold the stock solely for purposes of tracking the benchmark index are now free to unload Super Micro stock, creating a fresh headwind.
Over the last few months, Super Micro Computer has already been wrestling with several issues, which include slowing revenue growth, narrowing margins, and allegations of accounting fraud.
Let’s see if SMCI stock can recover from current headwinds and stage a rebound over the next 12 months.
Super Micro Computer Might Need to Raise Additional Capital
Back in August, Super Micro Computer delayed the filing of its annual report for fiscal 2024 (ended in June), which set off alarm bells on Wall Street. Moreover, the resignation of its auditor, Ernst & Young, raised questions about financial oversight, and a Department of Justice probe is said to be ongoing.
Super Micro Computer's management has said that it will comply with filing regulations by the February 2025 deadline to avoid being delisted from the Nasdaq exchange. However, investors were further rattled late Friday when a report from Bloomberg suggested that the company is looking to raise additional capital through Evercore, just after it raised $2 billion in March 2024.
While its core business in server and storage solutions remains relevant in an AI-driven market, it is difficult to ignore the uncertainty created by SMCI's continuing governance and financial reporting issues.
Is SMCI Stock Undervalued?
Super Micro Computer is uniquely positioned to benefit from the AI boom, offering servers and storage solutions required for AI workloads. Its AI-optimized servers can handle intensive machine learning and deep learning tasks.
The company has increased its sales from $2 billion in fiscal 2015 to $14.9 billion in 2024. The company’s top line has more than doubled from $7.1 billion in 2023. At its midpoint estimate, Super Micro claimed its revenue grew by 181% year over year to $5.95 billion in fiscal Q1 of 2025, based on its preliminary and unaudited results.
Moreover, analysts expect revenue to grow to $25 billion in 2025 and $30.2 billion in 2026. Comparatively, adjusted earnings are projected to expand from $2.20 per share in 2024 to $4.20 per share in 2026. Priced at just eight times forward earnings, SMCI stock looks extremely cheap, making it attractive to value and contrarian investors.
Out of the 11 analysts covering SMCI stock, one recommends “Strong Buy,” one recommends “Moderate Buy,” seven recommend “Hold,” and two recommend “Strong Sell.” The average target price for SMCI stock is $50.06, indicating an upside of 45.4% from current prices.
The Final Takeaway on SMCI Right Now
Given recent headwinds, the risk-reward equation has shifted drastically for long-term investors. The risk of delisting remains quite high, which suggests investors should pursue a wait-and-watch approach for SMCI stock. Further, regulatory issues might make it difficult for Super Micro to acquire additional clients or expand the business with existing customers in the interim period.
While the stock is cheap, investors should note that Super Micro’s current challenges aren’t temporary setbacks; they’re fundamental issues that could take considerable time before they are resolved.
