With a run from $280 at the start of 2024 to a high of over $1,200 barely two months later in March (after already gaining 246% in 2023), Super Micro Computer (SMCI) became the poster child for investor exuberance surrounding AI stocks. One would hardly expect a stock that became a favorite of momentum traders to be called a “value stock,” but SMCI surely looks like a value stock now after a nearly 60% drawdown from its 52-week high.
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Typically, trying to catch a “falling knife” is not a winning proposition, but here’s why SMCI could have a lot more potential than the average tech sector fallen angel: it is profitable, and it trades at a surprisingly cheap valuation when looking forward — the type of multiple that even hardcore value investors could get excited about.
I’m bullish on SMCI based on its dirt-cheap valuation and the fact that it should have plenty of earnings growth ahead. An upcoming stock split in October could also be a bullish catalyst for shares, and Wall Street analysts see significant upside potential.
Why Has SMCI Stock Gone Down?
Any time a stock runs up this fast, there’s the risk that it can move just as quickly to the downside. SMCI had already declined from its highs as some of the froth came out of the AI space and the market rotated from higher-multiple Tech stocks to more value-oriented stocks recently. Then, SMCI reported mixed fourth-quarter earnings results, which sent shares lower.
The report certainly wasn’t bad, as net revenue exploded to $5.31 billion from $3.85 billion last year, beating Street expectations. However, while non-GAAP earnings per share grew from $3.51 a year ago to $6.25, they missed the high analyst expectations of $8.07.
Analysts are also concerned that SMCI’s margins will be pressured, going forward. That’s because its gross margin dropped both year-over-year and sequentially to 11.2% from 17% a year ago (and 15.5% last quarter) due to hyperscalers (a lower-margin business) making up a larger percentage of sales.
These are valid concerns, as investors worry that the company’s products could be commoditized in the future. Still, at this point, the stock is so cheap that these concerns seem priced in, as we’ll discuss later.
Plus, margins could eventually bounce back. Bank of America Global Research, which downgraded the stock from Buy to Hold, wrote that margins should rebound in the second half of 2025 as “manufacturing efficiencies improve” and the company ships more liquid cooling racks, improves its customer mix, and introduces new platforms. Even with the downgrade to Hold, the firm’s $700 price target is well above where the stock trades today.
The long-term demand for SMCI’s products should remain strong as management says it “continues to experience record demand of new AI infrastructures.”
How Cheap Is SMCI Stock?
So, how cheap is SMCI? The stock’s Fiscal Year runs from July to June, so it just wrapped up Fiscal 2024. Looking ahead to fiscal 2025, the stock trades at just 14.8 times consensus analyst estimates of $34.46 per share. This is well below the S&P 500 (SPX), which currently trades at 21.9 times forward earnings.
Remember that many high-growth tech and semiconductor stocks trade at even higher valuations. For example, the Technology Select Sector SPDR Fund (XLK) trades at 29 times forward earnings.
Looking further out, SMCI is even cheaper — trading at a paltry 11.4 times 2026 earnings estimates of $45.07 per share (up significantly from 2025). It should be said that a lot can happen between now and 2026, so these estimates must be taken with a grain of salt, but this valuation is incredibly compelling.
Look to Peter Lynch
The surprisingly low price-to-earnings multiple isn’t the only reason that SMCI looks attractive. The stock looks especially exciting when looking at its price/earnings-to-growth ratio, or PEG ratio. Popularized by famed investor Peter Lynch, whose Magellan Fund at Fidelity Investments returned 29.2% on an annualized basis from 1977 to 1990, easily beating the broader market, the PEG ratio is a useful method for evaluating growth stocks.
The PEG ratio is a stock’s price-to-earnings ratio divided by its earnings growth rate. The lower the PEG ratio, the more attractive a stock looks. Investors who use this metric typically view a PEG ratio of under 1.0x to be attractive. Therefore, SMCI’s PEG ratio of just 0.4x is extremely attractive.
Stock Split on the Horizon
Investors should also be aware that SMCI announced an upcoming 10-for-1 stock split, which will take place on October 1. From a fundamental perspective, the split doesn’t materially change anything, as one share of SMCI at $540 is the same thing as 10 shares at $54.
However, splits can spark investor excitement about a stock and make shares more accessible to retail investors. Therefore, it could be a positive catalyst as October draws closer.
Is SMCI Stock a Buy, According to Analysts?
Turning to Wall Street, SMCI earns a Moderate Buy consensus rating based on five Buys, five Holds, and one Sell rating assigned in the past three months. The average SMCI stock price target of $978.50 implies 80.9% upside potential from current levels.
Investor Takeaway
SMCI stock is not for the faint of heart or risk-averse investors, as the stock often trades with lots of volatility on a day-to-day basis. That said, SMCI has a solid foundation and isn’t just a meme stock or a gamble. It is expected to earn $34.40 per share in the year ahead and right now trades at just 14.8 times that estimate. This makes it far cheaper than the broader market and many of its tech stock peers despite its impressive earnings and revenue growth. Zooming out to 2026, when analysts expect it to earn $45.07 per share, it looks even cheaper.
I’m bullish on SMCI based on this compelling valuation and earnings growth, as well as its attractive PEG ratio of just 0.4x. Plus, the upcoming 10-for-1 stock split could be a positive catalyst this fall, and the average analyst price target calls for considerable potential upside.
