NVDA - Super Micro Computer: The Correction May Be Coming To An End

2024-06-11 11:00:27 ET

Summary

• SMCI's stock has fallen over 30% recently, but I believe it should stay "Buy" rated, as its growth potential has not yet been fully priced in by the market.
• I believe the stock remains undervalued today, even when factoring in relatively modest future revenue growth rates and expansion in EBIT margins.
• I predict that SMCI is undervalued by slightly over 22% amid quite conservative assumptions.
• Technical analysis suggests that the current price action of SMCI's stock is in a consolidation phase, similar to the second half of last year.
• I believe that my forecast for the company's fair value will materialize within the next 12 months as the stock tests higher demand zones. SMCI remains a "Buy".

Intro & Thesis

I initiated coverage of Super Micro Computer ( SMCI ) stock in December 2022 with a "Strong Buy" rating when the share price was $83.35. Since then, the stock price rose by ~212% before I downgraded SMCI to "Hold" in mid-June 2023 . Now I see that I lowered my rating too early: I suggested reducing exposure to Super Micro because back then the stock had reached a valuation level more in line with its peers (whereas previously it had been significantly undervalued). In addition, my financial valuation model showed that Super Micro Computer no longer had a margin of safety at that valuation....

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