Friday morning got off to a blistering start for data center infrastructure specialist Super Micro Computer (NASDAQ:SMCI) as management upgraded its expectations for the quarter ending December. Subsequently, SMCI stock skyrocketed not only on the news but also the underlying credibility of multiple burgeoning ecosystems.
According to a Reuters report, the San Jose, California-based enterprise expects net sales to land between $3.6 billion and $3.65 billion for its second quarter of fiscal year 2024. Previously, management guided the metric to land between $2.7 billion and $2.9 billion. Notably, TipRanks points out that analysts anticipated a consensus estimate of $2.8 billion.
Additionally, Super Micro lifted its adjusted profit expectation to between $5.40 and $5.50 per share. That compares favorably to the prior guidance of $4.40 and $4.88. Just as with the top line, the new forecast ran well above Wall Street’s view of $4.51.
Undergirding demand for SMCI stock is a sector-wide push for artificial intelligence (AI) servers. Significantly, chip foundry powerhouse Taiwan Semiconductor (NYSE:TSM) produced better-than-expected profit and revenue prints. Such a performance was impressive given the weaker macroeconomic conditions at the time. Further, TSMC’s leadership team expressed optimism regarding AI demand, thus forecasting 20% revenue growth this year.
With so much excitement over AI-driven applications, SMCI stock shot higher based on its core relevancy. In particular, the underlying company’s liquid cooling solutions has witnessed increased demand from data centers processing more generative AI applications.
Optimism for SMCI Stock Anchored in Rational Expectations
While the broader technology sector enjoyed a blistering performance last year despite lingering economic concerns, some investors might be hesitant to continue riding the AI wave. Nevertheless, this latest upcycle in digital intelligence has so far demonstrated ample evidence of credibility, thereby supporting SMCI stock.
Beyond TSMC’s resilient earnings performance, Nvidia (NASDAQ:NVDA) continues to prove naysayers wrong. Since the beginning of January, NVDA gained more than 21% of equity value. On Friday late morning, it participated in the AI-backed enthusiasm, driving up more than 2%. For SMCI stock, the bullishness appears anchored in rational expectations.
Fundamentally, Super Micro Computer can address three burgeoning ecosystems:
- At the top level, the global data center market size may reach a valuation of $554.4 billion by 2030, according to Straits Research. If so, the expansion would represent a compound annual growth rate (CAGR) of between 10% and 13% from 2022 levels.
- Enticingly, the total generative AI ecosystem could be worth $1.3 trillion by 2032, according to a Bloomberg report. That would represent a CAGR of 42% over the trailing 10-year period from the forecast’s culmination point.
- Finally, data from The Wall Street Journal notes that spending in the global AI infrastructure market could reach $422.55 billion by 2029.
With generative AI processing requiring intensive computing power, cooling solution demand will likely accelerate. Therefore, the jump in SMCI stock seems a fundamentally justified move.
Why It Matters
At the moment, analysts rate SMCI stock a consensus moderate buy. This breaks down as five buys and one sell. However, with Friday’s sharp swing higher, the average price target — coming in at $361.33 — now represents about 12% downside risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
