J.P. Morgan Chase pointed out that the rapid expansion of the AI server market is the main driving force supporting the rise in ultra-micro computer stock prices. The stock price is expected to rise 10% to 1,150 US dollars by the end of the year, and the company's revenue will triple by next year.
Following Goldman Sachs, J.P. Morgan also covered “AI monster stocks” for the first time$Super Micro Computer (SMCI.US)$, giving it an “overrated” rating.
On March 25, J.P. Morgan analyst Samik Chatterjee's team released the latest report, which gave the ultra-microcomputer (SMCI) an “overrated” rating for the first time, setting its target price at $1,150 by December, which means that the current stock price still has room to rise by 10.4%.
J.P. Morgan believes that as a leader in the AI computing market, ultra-micro companies are expected to maintain their leading position as demand for AI model training, retrieval-augmented generation (Retrieval-Augmented Generation), and AI inference workloads grows.
The report points out that the rapid expansion of the AI server market is the main driving force behind the rise in ultra-micro computer stock prices. Since last year, benefiting from continued strong demand for servers as AI infrastructure, the stock price of ultra-microcomputers has soared more than tenfold, and has risen more than 200% since this year.
Benefit from continued strong server demand
Considering that it will benefit from the rapid expansion of the AI server market and AI solution TAM, the report is optimistic about ultra-microcomputers.
J.P. Morgan predicts that the compound annual revenue growth rate (CAGR) of ultra-microcomputers will reach 43% in the 2023-2027 fiscal year. Although the company's gross margin previously declined due to customer pricing capabilities, as demand for AI servers continues to be strong, the increase in pricing will drive gross margin recovery.
Based on considerations of market potential and the company's profitability, J.P. Morgan believes that ultra-micro computers can find growth opportunities in the rapidly expanding market, and set their target price to 1,150 US dollars by December this year, and the target price-earnings ratio is 24 times.
In terms of other profit indicators, the report predicts that the adjusted earnings per share (EPS) of ultra-microcomputers will increase from $11.81 in 2023 to $30.00 in 2025; revenue is expected to grow from US$7.123 billion to US$20.772 billion during this period.
J.P. Morgan predicts that by 2028, the AI server market will grow from 41 billion US dollars in 2023 to 283 billion US dollars, and ultra-microcomputers will use their advantages to occupy 10% to 15% of the market between 2027 and 2028.
J.P. Morgan Chase stated in the report:
“Although the target price-earnings ratio of 24 times is discounted compared to the current 36 times, it is still a huge premium for a company with an average price-earnings ratio of 15 times in 2023.”
“Strong demand driven by artificial intelligence coincides with iterative improvements in the company's product portfolio, and the company is in a more structured industry context.”
Editor/Somer