- We have watched as SMCI charted an impressive rally by +47.8% and crashed by -37.8% within two months, with the wider market similarly entering correction zones.
- With the elevated interest rates likely to remain higher for longer and the normalization in macroeconomic outlook prolonged, we can understand why the market has over-reacted thus far.
- Despite so, the long-term prospects for generative AI remain robust as similarly observed in SMCI’s raised FQ4’24 guidance, NVDA’s promising forward guidance, and TSM’s positive commentary.
- Thanks to the recent pullback, the stock finally trades near our fair value estimates while offering an improved upside potential.
- With SMCI still investing in profitable growth without overly relying on debt and share dilution, it remains a Buy at every dips.
We previously covered Super Micro Computer, Inc. (NASDAQ:NASDAQ:SMCI) in February 2024, discussing how the market had entered a new state of AI frenzy, with the stock valuations and prices reaching new all-time heights, offering interested investors with a minimal margin of safety.
In spite of its excellent growth prospects and impressive forward guidance, we were not certain if the stock deserved the overly premium growth valuation, since it might also lead to massive volatility once the hype died down and sales growth moderated.
Since then, we have watched as SMCI charted an impressive rally by +47.8% and crashed by -35.8% within two months, with the wider market similarly entering correction zones as the generative AI hype fades and inflation remains overly sticky.
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