The Super Micro Computer stock price remains in a consolidation phase this year as investors maintain their concerns about the artificial intelligence industry and the ongoing trade war between the US and China. The SMCI share price was trading at $33.50 on Tuesday, where it has been stuck at in the past few weeks. So, is it a good buy?
SMCI is facing major headwinds
Super Micro Computer, the giant server and storage company, faces substantial headwinds as signs that the AI bubble is emerging and the trade war escalates.
On the latter, the US has barred some tech companies from selling their products to Chinese companies. In a statement, NVIDIA, one of the affected companies, warned that it will lose at least $5.5 billion a year.
The statement came after the Trump administration barred the company from selling its H20 chip in China. The government seems resolute in its ambition to curb China’s growth in the AI sector.
These curbs may also affect Super Micro Computer, a company whose solutions are used widely in the artificial intelligence industry. However, analysts warn that China still has access to these products through third parties.
In an in-depth report last year, Hindenburg Research warned that the company was involved in accounting manipulation and sanctions evasion. The report also noted that SMCI still derived about 60% of its revenue in China.
Further, Supermicro and other data-center exposed companies are facing the reality that the industry is slowing. The clearest signal about this is Microsoft, one of the top data center operator globally.
Recent reporting shows that Microsoft continues to cancel some of its planned data center projects. For example, a recent report by TD Cowen noted that the company had abandoned data center projects set to use 2 gigawatts of electricity in the US.
Microsoft has also axed data center projects in other countries like the UK, India, and Australia. Other companies like Google and Amazon could do the same as the AI industry slowdown continues.
Super Micro Computer growth trajectory to slow
These developments may hurt Super Micro Computer’s growth trajectory. The most recent results showed that the company’s revenue grew by 54% in the second quarter to $5.6 billion.
Analysts anticipate that the third-quarter results will bring its revenue to $5.4 billion, a 40% increase from last year’s period. This growth will bring its annual revenue to $23.93 billion, a 60% annual increase.
While these are impressive numbers, experts expect the revenue will grow by 40% to $33.56 billion. A 40% annual growth rate is still impressive and could help to justify its valuation.
SMCI is also growing its earnings per share, which is expected to move to $2.59 this year to $2.21. It will then rise to $3.6.
There are signs that SMCI is highly undervalued as it has a forward PE ratio of 9.17, lower than other similar fast-growing companies. For example, NVIDIA has a forward multiple of 25, while Microsoft has a multiple of 25.
SMCI stock price analysis
Supermicro stock chart by TradingView
The daily chart shows that the Supermicro stock price has been in a tight range in the past few months. It remains slightly below the 100-day Exponential Moving Average (EMA).
On the positive side, the stock has formed a rising broadening wedge pattern, which is also known as a megaphone. The upper side of the wedge connects the highest swings since October, while the lower side links the lowest levels since December.
Therefore, the SMCI stock price will likely continue rising as bulls target the upper side of the wedge at $70, up by 105% from the current level. A move below the support at $27 will invalidate the bullish outlook.
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