“AI weather vane”$Super Micro Computer (SMCI.US)$The latest quarterly earnings report will be released after the market on April 30, EST. Since this year, ultra-microcomputers have continued their strong gains, and the cumulative increase far outperformed AI concept stocks such as Nvidia.

According to general market forecasts, ultra-micro computers are expected to record revenue of US$3,927 billion in the third fiscal quarter, a sharp increase of 206.04% year on year; earnings per share are 5.46 US dollars, an increase of 256.86% year on year. A total of 13 analysts recently gave ratings, and the average target price was $1047.45.

It is worth noting that ultra-microcomputers have fallen by nearly 30% since reaching a record high in March of this year, so this financial report has become the key to influencing subsequent trends.

Looking ahead to the latest quarterly earnings report, AI servers, as the most critical business of ultra-microcomputers, are still the focus of market attention.

The main products of ultra-microcomputers include servers, storage systems, full-rack scale solutions, etc., which can be used to deploy AI chips, that is$NVIDIA (NVDA.US)$,$Advanced Micro Devices (AMD.US)$There's also$Intel (INTC.US)$They all use their products.

Competitors in the industry are$Dell Technologies (DELL.US)$,$HP Inc (HPQ.US)$etc. But what makes the ultra-micro computer stand out is that it focuses on high-intensity, high-density computing power solutions, and this characteristic makes it more suitable for deploying AI compared to other competitors. As a result, in this wave of AI, the stock price performance of ultra-microcomputers has far surpassed rivals.

Recently, ultra-microcomputers were officially included in the S&P 500 index and became the best performing company in the index in a year. According to the analysis, thanks to the “personal relationship” between its founder Liang Jianhou and Nvidia founder Huang Renxun, Ultramicrocomputer has always been one of the first companies to obtain Nvidia's AI chips, which puts it in a leading position in market competition.

However, on the other side of this extraordinary “friendship,” the strong dependence of ultra-microcomputers on Nvidia is self-evident. From a business perspective, the low-end manufacturing industry to which ultra-microcomputers belong is highly replaceable. It has many strong competitors in the server field, and its performance easily fluctuates with upstream and downstream changes.

According to the Jibang Consulting report, Wave currently ranks first in the AI server market share, followed by Dell, HPE, etc. As can be seen, ultra-microcomputers do not have much of a leading edge in market share.

While the stock price is soaring rapidly, ultra-microcomputers have also been questioned as being overvalued. In March, Ultramicrocomputer issued an additional 2 million shares of common stock at a price of 875 US dollars per share, while providing the sole underwriter Goldman Sachs with the option to purchase up to 300,000 additional common shares within 30 days. However, after a month, Goldman Sachs did not exercise this option. This has led investors to be more convinced that the agency does not approve of the current valuation of ultra-microcomputers.

Ultramicrocomputer recently announced that it will release financial results for the third fiscal quarter on April 30. In January of this year, Ultramicrocomputer raised sales and profit guidelines before announcing financial results for the second fiscal quarter, but this time it broke the previous practice of providing initial results. This raised investors' concerns and led to a sharp drop of 23% in a single day.

It is worth noting that the company's profit margin may be further compressed by fierce market competition, and the low end manufacturing label also makes investors prefer short-term holdings, and the possibility that stock prices will fluctuate greatly in a short period of time is quite likely.

Comparing the turnover rate of ultra-microcomputers and Nvidia, it was found that the turnover rate of the former is mostly above 20%, while the turnover rate of the latter basically fluctuates between 1-3%. The essence behind this is that the current high stock price of ultra-microcomputers is mainly supported by short-term favorable performance and AI prospects, and most investors prefer to cash out at a higher level rather than hold it for a long time.

Not everyone has always been optimistic about the development trend of AI. Analyst agency CCS Insight pointed out a few days ago that generative AI may cool down in 2024 due to reasons such as rising costs of operating AI and increased calls for increased AI supervision. Gary Marcus, founder of the startup Robust.ai, also mentioned that currently humans are still far from the goal of general artificial intelligence (AGI).

What do you think of Wall Street?

J.P. Morgan analyst Samik Chatterjee gave the ultra-micro computer a “buy” rating for the first time, with a target price of 1,150 US dollars. The bank said,

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. 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.

Loop Capital analyst Ananda Baruah is optimistic about the leading position of ultra-microcomputers in the AI server market and has raised the target price sharply from $600 to $1,500. He pointed out that

Since ultra-microcomputers have been included in the S&P 500 index, it is expected to maintain a price-earnings ratio of 20-30 times in the future. According to the target price set by Baruah, he predicts ultra-microcomputer earnings of 50-60 US dollars per share in the 2026 fiscal year, and revenue will be between 30 and 40 billion US dollars.

Wells Fargo analyst Aaron Rakers reiterated that the ultra-micro computer “holds” the rating and maintains the target price of 960 US dollars. The analyst believes that

On the eve of the earnings report, ultra-microcomputers did not give a positive advance statement in accordance with convention. This was viewed as negative. In particular, this is currently at a time when the field of artificial intelligence is important, which heightens market concerns.

How did the stock price perform on previous earnings days?

According to Market Chameleon, backtesting the past 12 quarterly results days, ultra-microcomputers had a high probability of rising on the day the results were released, about 75%. The average change in stock price was ± 11.7%. The maximum increase was +31.2%, and the maximum decline was -23.4%.

Currently, the implied change in Ultramicrocomputer is ± 14.7%, indicating that the options market rose or fell 14.7% in a single day after betting on its performance; in comparison, the average post-performance stock price change of Ultramicrocomputer in the first 4 quarters was ± 14.4%, indicating that the stock's current option value options are overvalued.

Looking at the volatility bias, the current market trend for this stock is slightly bullish.

Cow friends,

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editor/tolk