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super microcomputer (SMCI -19.99%) Stock prices tumbled in daily trading on Friday. Shares of the server and storage technology specialist ended the day down 20%, according to data from S&P Global Market Intelligence.
Notably, Super Micro stocks actually opened Friday’s trading session bullishly. The company’s stock price had risen as much as 7.4% earlier in the day. The first gains may be thanks to the announcement of Sora, OpenAI’s new text-to-video artificial intelligence software. However, the stock appears to have stalled due to new reports from analysts.
wells fargo Analyst Aaron Lakers released a note on Supermicro this morning. In his press opening note, the Lakers gave the company an “equal weight” rating and set a one-year price target of $960 per share. While the analyst defended the company’s strong performance drive, his target was actually below the $1,045 per share price at which Supermicro began trading today. Neutral coverage appears to have caused today’s large drop.
Should you buy Super Micro stocks after today’s pullback?
Supermicro stock closed the day trading at about $803 per share. If the stock reaches the price targeted by Wells Fargo’s recent analyst notes, that would mean it could rise about 19.6% over the next year. The seemingly neutral analyst coverage that caused today’s massive decline can actually be viewed as meaningful bullishness following today’s significant valuation decline.
Thanks to its competitive position in the high-performance rack server market, Supermicro is poised for sustained demand tailwinds along with the rise of advanced artificial intelligence (AI) applications. A report today by Wells Fargo analysts actually suggested as much.
The analyst said Supermicro should continue to benefit from an AI-driven investment cycle in servers. However, the analyst said investors are buying the company’s stock at a price that could suggest the business is on track to achieve sales of $30 billion and earnings of more than $45 per share in fiscal 2025. expressed concern about the evaluation of
Before today’s sharp pullback, Supermicro stocks had been rising on a wave of bullish analyst coverage and favorable indicators for the broader artificial intelligence space. Excitement around AI-driven demand has pushed Supermicro into speculative territory. While the company provides superior growth and forward guidance that justifies a significant increase in valuation, there is still a lot of room for speculation in charting the company’s long-term business trajectory.
On the other hand, there are good reasons to believe there will be strong long-term tailwinds for businesses related to the rise of artificial intelligence. Supermicro management has given guidance for sales of between $14.3 billion and $14.7 billion for the fiscal year ending at the end of June this year. Even at the low end of management’s sales targets, sales will more than double on an annual basis, and in fact, there’s a good chance that this year and 2025 will beat expectations.
For investors looking to ride out potential volatility, today’s steep decline could be a buying opportunity.
Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Super Micro Computers. The Motley Fool has a disclosure policy.
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