Super Micro Computer Inc. is being hailed as an "AI winner" by Goldman Sachs analyst Michael Ng. The company's shares have seen a spectacular increase of nearly 1,000% since the beginning of 2023. However, according to Ng, this surge has brought the stock to a point where it is now considered "fairly valued." Ng recently initiated coverage on Super Micro's stock (SMCI) with a neutral rating and a target price of $941.

Following in the Footsteps of Nvidia Corp.

Just like Nvidia Corp., Super Micro has experienced significant revenue growth and a shift in its earnings power over the past couple of years. Ng notes that the stock's recent impressive rally coincides with a surge in earnings growth, leading to a forward earnings per share estimate multiple of 32 times, which is consistent with other AI enablers in the market.

Competing in the AI Infrastructure Space

Despite a positive outlook on Super Micro's position to meet the increasing demand for AI infrastructure from cloud service providers, Ng anticipates a more competitive landscape ahead. Hardware giants like Dell Technologies Inc. and Cisco Systems Inc. are also vying for a piece of the pie, albeit with an enterprise-centric approach.

Margin Expansion and Market Dynamics

Ng highlights Super Micro's expansion in operating margins over the past few years, attributing this growth to the company's diverse production offerings, revenue acceleration, and gross-margin expansion. However, he warns that as Super Micro shifts focus towards capturing market share with more competitive pricing strategies, margins on gross profit and earnings before interest and taxes could potentially decline.

In light of these observations, Super Micro's stock saw a significant 23% jump in Monday morning trading. This surge came despite Goldman's cautious stance following the announcement that the company would be included as a new component in the S&P 500 index.

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