Super Micro Computer: Turning Risk Into Reward at the Crossroads

Key Points

• Investors might now wonder whether Super Micro Computer stock is a potential Buy at the lows, writing off the tail risk of recent bearish momentum.
• Fundamentals look better for the company, with Wall Street analysts forecasting over 100% upside.
• Institutional buyers like the risk-to-reward setup here, so they've been buying up.

While the stock market’s attention has centered around the technology sector, with a special focus on today's artificial intelligence developments, certain stocks have gotten an unfair share of the price action and favor. Today, as the industry seems to cool down a bit, it might be time for other “left behind” names to start catching up to the leaders.

But this has nothing to do with momentum; in fact, it is the opposite of bullish momentum that investors should be looking for today. In a nutshell, everyone is always scared of buying stocks that have been beaten down, fearing that past behavior will repeat itself in the future. That may be the case, but not for shares of Super Micro Computer Inc. NASDAQ: SMCI.

After a dismal performance over the past 12 months, this fallen company might make a run for the leadership spot, looking to take on the price action seen in NVIDIA Co. NASDAQ: NVDA and other up-and-coming names in the sector. This stock's exposure to both the hardware and software demands of tomorrow's computing positions it at a critical juncture, with the potential for either doubling investor capital or resulting in a significant capital loss.

Wall Street’s Take on Super Micro Computer Stock

Just like retail investors, Wall Street analysts are always weary of upgrading or reiterating a bullish outlook on a stock that has been beaten down recently. Analysts risk damaging their reputations or even losing their jobs if they back the wrong horse.

With this in mind, any optimistic outlook on a stock dominated by bearish price action should carry significantly more weight. This is why today’s consensus price target of $66.9 a share matters a lot for Super Micro Computer stock, as it implies a net upside of as much as 105.5% from where it trades today.

These analysts have found enough reasons to think that the Super Micro Computer stock might have made its bottom here, but they also aren’t the only ones. Over the past month, the company’s short interest declined by as much as 13.8%, showing a significant sign of bearish capitulation and a shift in sentiment.

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As the bears realize any and all potentially negative developments have likely been priced into the stock’s price already, closing their short positions would also leave room for new buyers. Recently, a few institutional buyers have taken up this space.

As of January, two buyers have stacked up multi-million dollar Super Micro Computer stock positions. Starting with Janney Montgomery Scott and its $2.1 million stake, Teamwork Financial Advisors will follow with a $1.2 million stake. However, the previous quarter’s buying activity might be of more interest to investors.

State Street reported a boost of up to 4.3% in its holdings, bringing its net position to a high of $890.3 million for Super Micro Computer as of November 2024. The stage is set for a potential bull run in this name, after all.

What’s Going to Push the Stock Higher?

Little does the market know that the days of semiconductor supremacy are fading, and with this, a new era of technology is being prepared in the background. This new era will belong to quantum computing technology and its supporters, so naturally, capital will start looking for the next NVIDIA.

While some see Alphabet Inc. NASDAQ: GOOGL as a likely winner, a company with a valuation of over a trillion dollars isn’t very likely to deliver triple-digit upside as Super Micro Computer stock promises. Neither is the semiconductor aspect of the industry.

Instead, data center hardware and infrastructure will likely give stocks like Super Micro Computing a shot to the top, and the market is actually discounting this very close reality heavily today. Wall Street analysts now forecast up to $7.60 in earnings per share (EPS) for the same quarter next year, laying the bullish foundation.

This massive increase would boost the stock’s valuation to a price that could surpass the current price targets compared to today's $0.62 EPS level. Of course, there is the entire accounting scandal that took the stock down to a dismal 23% of its 52-week high.

But, at this low price, the risk of the company going even lower is severely capped compared to how high the stock could go. Wall Street often refers to this as a tail-risk trade, which is fancy for making a lot of money by only risking a fraction upfront.

That tail risk is something investors can enjoy today when considering buying Super Micro Computer stock.