Shares in computer server company Super Micro Computer (NASDAQ:SMCI) stock jumped 19% as it prepared to enter the S&P 500.
Shares that were worth $865 early on March 1 were trading at $1,045 when the market opened this morning. That’s a gain of about $10 billion in market capitalization. At the start of the year, Super Micro shares were trading at under $300.
Super AI Boom
The reason for the gain is artificial intelligence (AI). Super Micro assembles high-end server racks, often using chips from Nvidia (NASDAQ:NVDA). These are in high demand for building large language models (LLMs) and generative AI (GenAI) applications. The two companies were both founded in 1993, and their offices are within 10 miles of each other.
The AI infrastructure boom has lifted the entire market. The S&P 500 is up nearly 9% in 2024. Bank of America recently boosted its price target on the index to 5,400. The index opened this morning at about 5,182.
For its most recent quarter, Super Micro had a net income of $296 million, $5.10 per share fully diluted on revenue of $3.66 billion. Sales more than doubled from the previous year, while net income rose by 67%.
Super Micro’s rising stock price has given some analysts a nosebleed. Goldman Sachs recently cut its rating on SMCI stock to neutral. There are nine analysts now following the stock at Tipranks, with five saying buy and one saying sell.
This means the stock price has been volatile. A mid-February selloff sent it down below $750 per share. The sharp rise in SMCI has also brought out shorts, with over half the shares held off exchanges now listed as short, according to Fintel.
SMCI Stock: What Happens Next?
It may be better to own a hot product than its best customer, but Super Micro was undervalued before the AI boom began.
As of this writing, Dana Blankenhorn had a LONG position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
