Super Micro Computer hits record high ahead of its earnings

Key Points

• SMCI recently broke out of a multi-month consolidation, surpassing $350 resistance, taking its one-year performance to a remarkable 486% increase.
• SMCI's pre-reported figures for Q2, with revenue projected between $3.6 billion and $3.65 billion, significantly exceeding earlier guidance and analyst expectations.
• Ahead of its upcoming earnings release, analysts maintain a moderate buy rating, with two recent actions, including Barclays boosting its target and Wedbush reiterating a neutral rating.

Super Micro Computer NASDAQ: SMCI, a major standout in the tech stock arena, experienced a remarkable 36% surge last Friday, reaching a new all-time high after the stock broke out of a multi-month consolidation. 

The catalyst behind this surge was the release of preliminary financial results for the fiscal second quarter, ending December 31. These results exceeded expectations, with revenue projected to be between $3.6 billion and $3.65 billion, well above the earlier guidance of $2.7 billion to $2.9 billion. 

This unexpected boost in performance and significant share price appreciation has captured the attention of investors and traders alike, making SMCI an intriguing stock to watch ahead of its upcoming earnings report.

What is Super Micro Computer?

Super Micro Computer has established itself as a trusted leader in the technology industry, specializing in advanced computing solutions for diverse clients, including data centers, cloud providers, and enterprises. With a 30-year history, SMCI, led by CEO and founder Charles Liang, is a key player in manufacturing computers tailored for data center use, supporting functions such as website hosting, data storage, and AI applications. 

Liang's leadership has propelled the company to global prominence, operating in over 20 countries. SMCI's strong financial performance, marked by steady revenue growth, a healthy profit margin exceeding 10%, and stable debt levels, reflects its resilience. The company's current valuation metrics stand favorably compared to industry peers, solidifying its position as a reliable and financially sound technology partner.

The catalyst that sent shares to new heights

The driving force behind Super Micro's recent stock surge lies in the impressive financial figures unveiled in the preliminary earnings report. Analysts anticipated revenue of around $3.06 billion, but SMCI's guidance surpassed these expectations. The company is not only outperforming its previous estimates but is also showcasing substantial year-over-year revenue growth, indicating a potential doubling in revenue for the December quarter. 

This surge can be attributed to Super Micro's close ties to Nvidia, with a significant portion of its sales dependent on Nvidia's allocation of graphics processing units (GPUs), particularly crucial in the booming field of artificial intelligence.

Multi-month consolidation breakout

The news couldn’t have come at a better time for the stock. Before the announcement, the stock was consolidating near its all-time high, in the upper band of its multi-month consolidation. Following the catalyst, the stock broke above the all-important $350 resistance level and did not look back. The recent surge has taken the stock to an impressive 486% increase over the previous year and is already up over 60% year-to-date.

The 246% surge in SMCI's stock last year and an additional 87% jump in 2022 reflect the company's consistent growth. Historical perspective reveals that since the end of 2018, Super Micro's stock has increased almost 30-fold, illustrating a remarkable return on investment for early backers.

However, with the recent catalyst and higher surge, could the market already be pricing in the company's results, set for release on January 29 after the market close?

Analyst's Perspective

SMCI possesses a moderate buy rating based on eight analyst ratings. Its rating is in line with other computer and technology companies and above the consensus S&P 500 rating, currently Hold.

Of the eight ratings, six analysts have given SMCI a Buy rating, one a Hold rating, and one a Sell rating. The stock trades over 26% above the consensus price target of $344. Most recently, two analysts took action, with Barclays boosting its target on SMCI from $335 to $396 and Wedbush reiterating its rating as neutral.

In a recent note, Wedbush highlighted the significance of Super Micro's sales being closely tied to Nvidia's GPU allocation, especially considering the current AI boom. Despite the positive outlook, the analysts maintained a neutral rating on the stock, emphasizing the need for detailed information from SMCI's upcoming earnings report and call. The analysts acknowledged the potential for significant positive implications but stressed the importance of awaiting further details before revisiting forward assumptions.