Super Microcomputer (SMCI -19.99%) The stock was crushed in Friday’s daily trade. Shares of the server and storage technology specialist fell 20 percent in the intraday session, according to data from S&P Global Market Intelligence.
Notably, Super Micro stocks actually opened Friday’s trading session on a bullish note. The company’s shares were up 7.4 percent earlier in the day. Early gains may come thanks to the unveiling of Sora — OpenAI’s new text-to-video artificial intelligence software. But the stock seems to have lost ground due to new coverage from one analyst.
Wells Fargo Analyst Aaron Rickers published a note on Super Micro this morning. In a note initiating coverage, Rakers gave the company an “equal weight” rating and set a one-year price target of $960 per share. While the analyst contended the strong performance was a catalyst for the company’s business, his target actually came in below the $1,045 per share price at which SuperMicro opened trading today. Neutral coverage seems to have triggered today’s big selloff.
Is Super Micro Stock a Buy on Today’s Pullback?
Super Micro stock ended today’s trading at around $803 per share. If the stock reaches the price target set by Wells Fargo’s recent analyst note, that would mean a potential upside of about 19.6% over the next year. The neutral analyst coverage that triggered today’s massive selloff can actually be seen as meaningful bullishness on the heels of today’s big valuation pullback.
Thanks to competitive forces in the high-performance rack server market, SuperMicro looks poised to see continued demand tailwinds coupled with the rise of advanced artificial intelligence (AI) applications. Today’s coverage by Wells Fargo analysts actually suggested as much.
Supermicro should continue to benefit from an AI-driven investment cycle in servers, the analyst said. On the other hand, the analyst expressed concerns about investors valuing the stock price, which could potentially indicate that the business will have sales of $30 billion in its 2025 fiscal year and $45 billion in revenue. Higher earnings per share were on the way.
Before today’s big pullback, Super Micro stock was riding a wave of bullish analyst coverage and favorable signals for the broader artificial intelligence space. With the excitement surrounding AI-driven demand, Super Micro has been pushed into speculative territory. While the business is delivering impressive growth and forward guidance that justifies a large increase to its valuation, there is still considerable speculation involved in charting the company’s long-term business trajectory.
On the other hand, there are actually good reasons to think that business will see powerful long-term tailwinds related to the rise of artificial intelligence. For the fiscal year ending at the end of this June, Super Micro Management is guiding for sales of between $14.3 billion and $14.7 billion. Even at the low end of management’s sales target, revenue will more than double on an annual basis — and there’s actually a good chance that performance will beat expectations this year and in 2025.
For investors willing to deal with potential volatility, today’s big sell-off could be a buying opportunity.
Keith Noonan has no position in any stocks. The Motley Fool recommends the Super Microcomputer. The Motley Fool has a Disclosure Policy.