JP Morgan talks about "Tenfold Stock in One Year" Super Micro: It is reasonable to have a 24x PE ratio, expecting to capture 10-15% market share in AI servers
Morgan Stanley pointed out that the rapid expansion of the AI server market is the main driving force behind the rise in AMD's stock price. It is expected that by the end of the year, the stock price will increase by 10% to $1150, and the company's revenue will triple next year
Following Goldman Sachs, Morgan Stanley also initiated coverage on "AI Monster Stock" Super Micro Computer, giving it an "overweight" rating.
On March 25th, the analyst team at Morgan Stanley led by Samik Chatterjee released a new report, giving Super Micro Computer (SMCI) an "overweight" rating for the first time, setting a target price of $1150 by December, implying a 10.4% upside potential from the current stock price.
Morgan Stanley believes that as a leader in the AI computing market, Super Micro is expected to maintain its leading position as the demand for AI model training, Retrieval-Augmented Generation, and AI inference workloads grows.
The report points out that the rapid expansion of the AI server market is the main driver supporting the rise in Super Micro Computer's stock price. Benefiting from the strong demand for servers as AI infrastructure since last year, Super Micro Computer's stock price has surged over 10 times, with a gain of over 200% this year.
Benefiting from Strong Server Demand
Considering its benefit from the rapid expansion of the AI server market and AI solution TAM, the report holds an optimistic view on Super Micro Computer.
Morgan Stanley expects Super Micro Computer's revenue compound annual growth rate (CAGR) to reach 43% between fiscal years 2023 and 2027. Although the company's gross margin has declined due to customer pricing power in the past, pricing improvements driven by strong demand for AI servers will help restore the gross margin.
Based on market potential and company profitability considerations, Morgan Stanley believes that Super Micro Computer can find growth opportunities in the rapidly expanding market, setting its target price at $1150 by December this year, with a target P/E ratio of 24 times.
In terms of other profit indicators, the report predicts that Super Micro Computer's adjusted earnings per share (EPS) will show a growth trend from $11.81 in 2023 to $30.00 in 2025, and revenue is expected to increase from $7.123 billion to $20.772 billion during this period.
Morgan Stanley forecasts that by 2028, the AI server market size will grow from $41 billion in 2023 to $283 billion, and Super Micro Computer will capture 10% to 15% of this market share in 2027-2028 with its advantages.
In the report, Morgan Stanley stated:
"Although the target P/E ratio of 24 times is discounted from the current 36 times, it is still a significant premium for a company with an average P/E ratio of 15 times in 2023."
"The strong demand driven by artificial intelligence aligns with the iterative improvement of the company's product portfolio, positioning the company in a structurally better industry backdrop."