Is Super Micro Computer (SMCI) Pricing Reflect High Performance AI Server Growth Prospects?

• If you are wondering whether Super Micro Computer's share price still lines up with its underlying value, this article will walk through what the current numbers actually suggest.
• The stock recently closed at US$32.64, with returns of 8.2% over 7 days, 11.1% over 30 days, 5.4% year to date, 5.9% over 1 year, and a very large 3 year and 5 year return that is more than 7x the starting point.
• Recent news coverage has focused on Super Micro Computer's role in high performance computing and AI related server solutions, as well as its position in broader conversations about data center demand and infrastructure spending. These themes have framed much of the debate around how durable the business prospects might be relative to the current share price.
• On our checks, Super Micro Computer has a valuation score of 4 out of 6. Next we will look at what different valuation approaches say about that score, before finishing with a simple way to interpret all of this through a clearer framework at the end of the article.

Find out why Super Micro Computer's 5.9% return over the last year is lagging behind its peers.

Approach 1: Super Micro Computer Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company could be worth today by projecting its future cash flows and then discounting those back to a single present value figure.

For Super Micro Computer, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flows in US$. The latest twelve month free cash flow is about $195.1 million. Analyst estimates and extrapolations then extend out over the next decade, with projected free cash flow reaching about $2.9 billion in 2035, after passing through years that include both a projected free cash flow loss in 2026 and positive figures in later years.

When these projected cash flows are discounted back and combined, the model arrives at an estimated intrinsic value of US$51.16 per share, compared with the recent share price of US$32.64. On these assumptions, that implies the stock is 36.2% undervalued relative to this DCF estimate.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Super Micro Computer is undervalued by 36.2%. Track this in your watchlist or portfolio, or discover 863 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Super Micro Computer.

Approach 2: Super Micro Computer Price vs Earnings

For profitable companies, the P/E ratio is a useful shorthand because it links what you pay for each share directly to the earnings that business is currently producing. It helps you gauge how many dollars of price the market is attaching to one dollar of earnings.

What counts as a "normal" P/E often reflects how the market views a company’s growth potential and risk. Higher expected growth or lower perceived risk can support a higher P/E, while slower expected growth or higher risk usually lines up with a lower multiple.

Super Micro Computer currently trades on a P/E of 24.58x, compared with the broader Tech industry average of about 22.89x and a peer group average of 62.75x. Simply Wall St’s Fair Ratio for the company is 70.32x, which is their proprietary view of what the P/E could be given factors such as earnings growth, industry, profit margins, market cap and company specific risks.

The Fair Ratio is more tailored than a simple industry or peer comparison because it adjusts for those business and risk characteristics instead of assuming all companies in the group deserve similar multiples. With a current P/E of 24.58x versus a Fair Ratio of 70.32x, the shares screen as materially below that Fair Ratio based view.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1445 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Super Micro Computer Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company, connected to your own assumptions for future revenue, earnings, margins and a fair value estimate. On Simply Wall St’s Community page, millions of investors use Narratives to link the story they see for a business to a financial forecast and a fair value, then compare that fair value to the current share price to decide whether the stock looks attractive, fully priced or expensive based on their own view. Narratives update as new information such as news or earnings comes through, so your forecast and fair value stay in sync with what is happening rather than locked to a one time model. For Super Micro Computer, one user has created a Narrative with an estimated fair value of about US$74.53, while analysts in another Narrative are closer to US$48.53, which shows how different, reasonable perspectives on the same company can lead to very different conclusions once they are tied to explicit numbers.

Do you think there's more to the story for Super Micro Computer? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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