Super Micro Computer stock (NASDAQ: SMCI) has seen significant growth, climbing nearly 13 times over the past three years from approximately $4 per share in February 2022 to around $56 today. This surge has been fueled by increasing demand for server systems, particularly driven by the rise of generative artificial intelligence. However, in 2024, the stock faced a major selloff, dropping as much as 80% due to regulatory concerns, including a delay in filing its annual 10-K report with the SEC, accusations of accounting irregularities from short-seller Hindenburg Research, and the resignation of its public auditors.
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Currently, Super Micro stock trades at approximately 25x estimated trailing earnings and 15x projected FY’26 earnings (fiscal years ending in June). Is this valuation justified? Absolutely! The company’s earnings are expected to nearly double from FY’24 levels in the coming years. Additionally, governance-related concerns could diminish. As part of its recent Q2 update, Super Micro confirmed that its delayed 10-K report is on track for submission to the SEC by February 25. A few months ago, the company conducted an internal review led by a special board committee with legal and forensic accounting experts, which found no evidence of fraud or misconduct. With the stock up 60% year-to-date, the momentum may continue. Also. in the other direction, see Palantir Stock To Crash 50%?
SMCI Stock Has Done It In The Past
Super Micro has posted gains every year for the last four years, though it hasn’t consistently outperformed the market. The stock saw returns of 39% in 2021, 87% in 2022, 246% in 2023, and 7% in 2024. The Trefis High-Quality Portfolio, which consists of 30 stocks, has been considerably more stable while consistently beating the S&P 500. Why? Because it provides strong returns with reduced volatility, as seen in HQ Portfolio performance metrics.
Why Revenue Growth Is Set To Pick Up
Super Micro is a provider of data center solutions, offering server systems, storage, networking products, and management software. The company’s revenue is expected to grow by nearly 60% in FY’25 to around $24 billion, driven by strong data center investments in AI and accelerated computing. Additionally, with Nvidia ramping up production of its Blackwell GPUs, demand for SMCI’s servers may increase as these GPUs require advanced infrastructure. Moreover, AI models are becoming increasingly multimodal, processing text, speech, images, video, and 3D content—leading to greater demand for high-performance computing. Super Micro’s FY’26 revenue forecast of approximately $40 billion suggests that revenue growth may accelerate to 70% that year.
Despite the commoditized nature of the server market, Super Micro holds a competitive edge due to its highly customizable and energy-efficient solutions. Additionally, the company anticipates that liquid-cooling systems, once rare in servers, will be incorporated into 30% of its shipments next year. If sales grow by another 35% in FY’27, total revenue could reach $54 billion, reflecting a 3.6x expansion over three years.
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Margins Could Expand
Alongside strong revenue growth, Super Micro’s adjusted net margins have been improving, rising from about 6% in FY’22 to approximately 9% in FY’24, thanks to economies of scale and a shift toward higher-end products. While gross margins have recently faced pressure due to the cost of liquid-cooling systems, efficiency improvements in the supply chain may help stabilize profitability. Additionally, slower growth in fixed costs, such as R&D and selling expenses, could further boost margins. As a result, it’s reasonable to expect adjusted net margins to expand by at least 1.5x, reaching around 13.5% by FY’27.
Valuation Multiple Could Contract At A Slower Pace
If revenue expands by 3.6x between FY’25 and FY’27, and margins improve by 1.5x, earnings could rise by ~5.5x. If earnings increase at this rate, the P/E ratio would typically shrink to about a fifth of its current level—assuming no change in stock price. However, investors expect Super Micro’s stock to keep rising. Instead of a dramatic drop in P/E from 25x to below 5x, it could stabilize at around 12.5x. This suggests that Super Micro stock could more than double, potentially reaching $140 per share in the medium term.
The exact timing of this potential increase—whether in two or three years—is less critical than the overall trajectory. As long as revenue growth and margin expansion continue, the stock is likely to respond favorably. Interested in Super Micro’s risk-adjusted returns versus the S&P 500? See our analysis of Super Micro Computer Sharpe Ratio.
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