Needham analyst Quinn Bolton initiated coverage on Super Micro Computer Inc (NASDAQ:SMCI) with a Buy rating and a price target of $600.
Bolton noted Super Micro as a "show me" story on its margin recovery, justifying its multiple being at a slight premium to its hardware rivals.
The analyst noted that the stock price reflects most of the risk associated with the Board's review of internal controls.
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Bolton noted Super Micro as a significant beneficiary of growing investment in AI infrastructure and forecasts a revenue CAGR of over 55% from fiscal 2021 to fiscal 2026.
The analyst said Super Micro is currently involved in deploying some of the world's most significant AI clusters and entered fiscal 2025 with a record-high backlog.
Bolton noted the bear case gross margin trending towards the single digits is too pessimistic despite his conservative margin trajectory, citing pricing competitiveness for larger liquid-cooled AI deals.
The analyst flagged that Super Micro, a first mover in rack-level liquid cooling solutions, has already shipped liquid-cooled racks to a handful of customers and is experiencing a rapid acceleration in customer requests for liquid-cooled solutions.
He noted liquid cooling as an opportunity for the company to increase its market share further.
Super Micro has been actively expanding its manufacturing capabilities. It will start production at its Malaysia campus in November, which will double manufacturing capacity in the long term, Bolton highlighted.
As per the analyst, these capacity expansion efforts and growth at emerging CSPs and sovereigns should drive fiscal 2025 revenue to $26 billion-$30 billion (+87% Y/Y).
Super Micro stock is up 80% in the last 12 months despite losing 30% in the previous 30 days due to the Hindenberg short report.
Investors can gain exposure to Super Micro through iShares Future AI & Tech ETF (NYSE:ARTY) and iShares U.S. Digital Infrastructure and Real Estate ETF (NYSE:IDGT).
