Super Micro Computer (NASDAQ: SMCI) experienced a significant downturn in Friday’s trading session. The share price of the specialist in server and storage technology closed the day with a 20% decline, according to data from S&P Global Market Intelligence.
Interestingly, Supermicro’s stock began the day with a positive trajectory, up by as much as 7.4%. This surge might have been influenced by the introduction of Sora, OpenAI’s new text-to-video artificial intelligence software. However, the stock saw a reversal of fortune likely due to the initiation of coverage by an analyst.
Wells Fargo analyst Aaron Rakers released a note on Supermicro, giving the company an “equal weight” rating and setting a one-year price target of $960 per share. Despite acknowledging strong performance catalysts, Rakers’ target fell below the day’s starting price of $1,045 per share. This neutral coverage seemed to trigger the substantial sell-off.
Is Supermicro an attractive buy amid this pullback?
Supermicro closed trading at approximately $803 per share, implying a potential 19.6% upside if it were to reach Wells Fargo’s target within a year. Despite the negative impact of the analyst coverage, it could be interpreted as bullish given the significant valuation adjustment.
With competitive advantages in the high-performance rack server market, Supermicro stands to benefit from increasing demand driven by advanced AI applications. Wells Fargo’s analysis echoed this sentiment, highlighting the company’s potential to capitalize on the AI-driven investment cycle in servers.
However, concerns were raised about the stock being overvalued, potentially implying unrealistic revenue and earnings expectations for the 2025 fiscal year.
Before the downturn, Supermicro had garnered optimism from bullish analyst coverage and favorable trends in the AI sector. While the company has demonstrated strong growth and provided promising guidance, uncertainties remain regarding its long-term trajectory.
Nevertheless, the long-term prospects tied to the AI industry remain compelling. Supermicro’s management anticipates significant revenue growth for the current fiscal year, with a possibility of exceeding expectations in both 2022 and 2025.
For investors prepared to navigate potential volatility, the recent sell-off presents an opportunity to consider investing in Super Micro Computer.
