Super Micro Computer Stock To 2x?

Super Micro Computer stock (NASDAQ: SMCI) has had a solid run, rising by almost 10x over the past three years from levels of about $5 per share in June 2022 to about $47 presently, driven by surging demand for server systems led by the generative artificial intelligence wave.  While the stock witnessed a massive selloff in 2024 – seeing a drawdown of as much as 80% at one point – amid regulatory concerns and accusations from short-seller Hindenburg Research regarding accounting irregularities – there are signs that the markets are easing the governance-related discounts on the stock. Super Micro stock trades at about 22x estimated FY’25 earnings and 17x estimated FY’26 earnings (fiscal years end June) at the current price level. Is this a reasonable multiple? It probably is, especially if you consider that the company’s earnings have the potential to grow by almost 5x from FY’25 levels in the next few years. The stock remains up 57% so far this year, and there’s a possibility that the strong run could continue. Here’s why.

Image by Pete Linforth from Pixabay

Revenue Growth Should Continue

Super Micro Computer is a data center solutions provider, which sells server systems, server boards, storage, networking solutions, management software, and installation and maintenance services. SMCI is projected to grow its revenue by close to 48% to $22 billion in FY’25 (which ends June 2025) with the number likely to grow 35% in FY’26 to about $30 billion as data center-related spending remains strong with tech companies boosting their AI and accelerated computing capacity. There is a possibility that sales could grow at an even stronger pace. Nvidia is slated to ramp up production of its latest Blackwell GPUs, and this could, in turn, scale up demand for SMCI’s servers which are used to deploy the latest GPUs.

Super Micro’s server offerings have always been closely tied to Nvidia’s GPU ecosystem and roadmap. The company has typically been quicker, compared to peers, to supply server systems that support Nvidia’s latest products, given its modular system designs, advanced cooling and power infrastructure, and close collaboration with Nvidia on software and hardware integration. This positions SMCI to benefit disproportionately as Nvidia’s Blackwell-based systems scale up. The company is a key supplier of custom, high-density GPU servers to Nvidia’s data center clients. Moreover, AI models are increasingly multimodal – moving from just text processing to working with speech, images, video, and 3D –  calling for higher computing power and consequently higher demand for servers and computing capacity. Separately, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Although the server market is commoditized, Super Micro does have some competitive advantages, given that its products are seen as being more customizable and more energy efficient than rivals. Super Micro’s customers are also likely to opt for more premium products. For example, the company estimates that costly liquid-cooling systems for servers, which were relatively rare in the pre-AI era, will be installed in 30% of the server racks it ships next year. The company is also steadily boosting its production capacity.  If the company can grow its sales by another 35% in FY’27, this would take sales to about $54 billion for that year. This would translate into a growth rate of about 2.5x over three years.

Margins Could See Turnaround 

Combine this better-than-anticipated revenue growth with the fact that Super Micro’s adjusted net margins (net income, or profits after all expenses and taxes, calculated as a percent of revenues) could see a meaningful turnaround. While net margins have been on the downtrend, falling to about 6.4% as of the first nine months of 2025, down from about 10% in the year-ago period, things could get better, driven by economies of scale and a more favorable product mix skewed toward more premium products. The company has seen its gross margins face some pressure in recent quarters as it sells a higher mix of liquid-cooling systems, which are proving expensive to produce. Now, liquid cooling technology has been pretty hard to implement at scale. Concerns over reliability, including issues such as leaks and condensation, have made it tricky.

But Super Micro appears to have been able to crack this technical challenge, deploying these systems at a relatively large scale. Considering this, the higher upfront costs and margin pressure might just end up being a decent long-term trade-off, as it might give the company an edge in the AI hardware market. Moreover, the company’s key fixed costs such as research and development and selling and general expenses are expected to grow at a slower pace than its revenues, and this could improve margins further. Considering this, it may be reasonable to assume that Super Micro’s adjusted net margins could improve by at least 2x between FY’25 and FY’28 to about 12%. related: Why are SMCI margins so low?

Valuation Multiple Could Contract At A Slower Pace

If revenues grow by about 2.5x between FY’25 and FY’27, with margins expanding by about 2x over the same period, this would imply that earnings can grow by about 5x. Now if earnings grow 5x, the P/E multiple will shrink to about a fifth of its current level, assuming the stock price stays the same. But that’s exactly what Super Micro investors are betting will not happen! If earnings expand 5x over the next few years, instead of the P/E shrinking from around 22x presently to under 5x, we think that the multiple could stand at about 10x.  This could make an over 2x rise in Super Micro stock a real possibility in the medium term – with the stock rising to levels of over $100 per share. What about the time horizon for this high-return scenario? In practice, it won’t make much difference whether it takes 2 years or 3 – as long as Super Micro is on this revenue expansion trajectory with margins trending up, the stock price could respond similarly.

That said, it’s important to balance this upside potential with an awareness of past concerns. Super Micro has faced scrutiny over corporate governance – including allegations of accounting irregularities, SEC filing delays, and pressure from short-sellers. While the company has taken steps to address these issues, investors should keep this track record in mind as they evaluate the sustainability of the current growth story. While investing in individual stocks is risky, the Trefis Reinforced Value (RV) Portfolio, has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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