1 Stock-Split AI Play to Buy With 63% Upside, Analyst Says

From January 1, 2024 through March 1, 2024, shares of Super Micro Computer (Nasdaq: SMCI) stock roughly quadrupled in price, setting the stage for a huge stock split that took place roughly six months later, when owners of Super Micro stock found their shareholdings increased 10x in number (and the price per share cut by 90%).

Super Micro stock has bounced around a lot since then, only to return to roughly the same place it was after the big split. Selling for around $42  per share today, Super Micro is worth $25.5 billion in total.

But one analyst thinks it could be worth a lot more.

Why Loop Capital Loves Super Micro Computer

Loop Capital analyst Ananda Baruah raised his price target on Super Micro Computer stock by 40%, to $70 a share on Wednesday, following the company’s fiscal Q2 2025 earnings report showing the manufacturer of high-end servers for data centers edging out analyst forecasts for sales, but missing on quarterly earnings.

Despite the miss, Baruah predicts big things for Super Micro, noting that ramping production of Blackwell chips by Nvidia (Nasdaq: NVDA) into the summer is also a catalyst for sales growth at Super Micro. Baruah seemed especially excited that Super Micro’s two biggest customers “have huge plans for 2025,” arguing “it is inevitable that SMCI benefits” from these expansion plans.

In this regard It’s worth highlighting a change to Super Micro’s business model that only just appeared in the company’s most recent 10-K filing with the SEC. To wit, as of today there is at least one Super Micro customer representing “10% or more of the net sales in fiscal year 2024.” That was not the case as recently as 2023, when no single customer represented such a large percentage of sales.

Too-high concentration of sales among too few customers is often considered a “risk factor” in 10-K filings. In this particular instance, however, one could argue that a 10% concentration of sales in a single customer, and specifically, a customer that Loop Capital says has “huge plans for 2025,” could actually be good for Super Micro’s business! (And if Super Micro’s second biggest customer accounts for anywhere near 10% of sales as well, the news could be even better).

Needless to say, therefore, Loop Capital’s analyst thinks Super Micro stock is a “buy.”

Is Super Micro stock a buy?

If Baruah is correct and Super Micro’s sales are going gangbusters in 2025, the stock price might rise enough that management would consider doing another stock split. Stock splits are often considered bullish events themselves, and that could push Super Micro stock even higher. But is Super Micro stock cheap enough today, that it has room to run?

At first glance, it sure does look that way.

Consider that at $25.5 billion, Super Micro stock only costs about 17.6 times trailing earnings today. Against consensus analyst forecasts for 37.5% annual earnings growth over the next five years, that’s not at all a high valuation. In fact, Super Micro’s stock price could literally double from where it’s at today, and the stock’s PEG ratio would still be less than 1.0.

Most value investors would agree that, all else being equal, a 1.0 PEG ratio is cheap, and that a PEG ratio of less than 1.0 should move a stock to the top of your buy list.

That said, investors need to be aware that there are risks to investing in Super Micro stock. The most significant risk, I’d argue, is the fact that the company has a spotty record of free cash flow generation, with FCF having been positive only twice in the past five years, and having matched or exceeded reported net income in precisely zero of those years. Over the last 12 months, free cash flow for Super Micro stock has been even more negative than usual, with the company burning through $2.2 billion… at the same time as it was reporting $1.4 billion in positive profits.

Those numbers don’t seem to frighten Loop Capital’s Ananda Baruah, but they raise serious doubts about the quality of Super Micro’s supposed “profits.” 

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