After a substantial rally in 2024 and over the last 12 months, SMCI's stock has taken a slight dip over the last month. While many may have seen the pullback as another entry point, analysts at Goldman Sachs have warned that sentiment is now “mixed to negative” on the stock.
Goldman cuts price target on SMCI stock
The investment bank told investors in a note Thursday that the stock is an artificial intelligence winner, but “investor feedback [is] mixed to negative” based on the current valuation.
“Although investors generally recognized SMCI’s positioning as an AI winner given SMCI’s position as an AI server supplier to GPU-specialized CSPs, pushback largely centered around valuation,” wrote the bank.
“Specifically, does SMCI warrant its current 45X 2024 P/E multiple when other AI server OEM’s are trading at ~9-16X (HPE at 9X, DELL at 16X) and SMCI itself was trading at 9X at the beginning of 2023,” they questioned.
Based on Goldman Sachs’ conversations with investors, they believe a key debate is whether SMCI should be able to sustain its competitive advantage and speed-to-market on AI servers, given the rising competition from other AI server OEM’s that were not fast-to-market in early 2023. This may be particularly the case as demand expands beyond hyperscaler and AI CSP to enterprise.
Can SMCI stock rally continue?
The question for investors now is whether the rally will continue. Goldman Sachs cut its SMCI price target to $937 from $941 in the recent note, maintaining a Neutral rating on the stock.
However, JPMorgan initiated coverage on Super Micro Computer (NASDAQ:SMCI) with an Overweight rating and a price target of $1,150.00, stating that the Compute cycle is at the forefront of the AI revolution.
“Super Micro is the leading company in the AI compute market, which is burgeoning with demand stemming from training AI models, RetrievalAugmented Generation by Tier 2 CSPs and Enterprises, and eventually AI inferencing workloads,” said the bank.
“We expect the leadership to continue, led by a balance of custom-built solutions and fast time to market, although potential upside is more likely from rapid expansion in the AI Server market rather than expansion of the already premium valuation multiple."
Meanwhile, Argus initiated coverage of the company with a Buy rating and a $1,350 price target, describing it as a "leading computer and server provider for the age of generative AI."
The firm noted that SMCI is experiencing accelerating revenue and earnings growth as demand for its server and computing solutions expands rapidly.
"Despite the explosion in the stock price, valuations for SCMI have not soared out of sight," states Argus. "Although the SMCI shares are not inexpensive, we believe prospects for near-term and long-term growth justify investment in the shares at current levels."