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

• If you are wondering whether Super Micro Computer’s current share price lines up with its underlying worth, you are not alone. That is exactly what this article will unpack for you.
• The stock has been through a mixed period, with a 3.4% gain over the last 7 days, a 1.8% decline over the past month, a modest 0.5% gain year to date, a 31.6% decline over the past year, and a very large return over three and five years that is more than 2x and more than 8x respectively.
• Recent attention on Super Micro Computer has centered on its role in supplying high performance servers and hardware for computing heavy workloads. This has kept it in the conversation whenever investors look at companies tied to data centers and advanced computing, and helps explain why the share price has been so sensitive to shifts in sentiment around these themes.
• On Simply Wall St’s 6 point valuation checklist, Super Micro Computer scores a 5 out of 6 for being assessed as undervalued. Next, we will compare what different valuation approaches say about the stock and then finish with a way of looking at value that goes beyond a single number.

Find out why Super Micro Computer's -31.6% 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 by projecting its future cash flows and then discounting them back to today’s value. It is essentially asking what those future dollars are worth in today’s terms.

For Super Micro Computer, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The company’s last twelve month Free Cash Flow is about $394 million. Analysts provide explicit forecasts for several years, with Simply Wall St extrapolating further out. For example, projected Free Cash Flow for 2029 is $1,069.79 million, or about $1.07b, with a series of both analyst-based and extrapolated figures between 2026 and 2035.

Bringing all these projected cash flows back to today results in an estimated intrinsic value of $40.66 per share. Compared to the current share price, this suggests the stock is 23.4% undervalued according to this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Super Micro Computer is undervalued by 23.4%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

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 a profitable business like Super Micro Computer, the P/E ratio is a useful way to think about value because it links what you pay directly to the earnings the company is already producing. Investors usually accept a higher P/E when they expect stronger growth or see less risk, and a lower P/E when growth looks more modest or risks feel higher.

Super Micro Computer currently trades on a P/E of 21.36x. That sits below the Tech industry average P/E of 23.08x and well below the peer group average of 59.99x. Simply Wall St also calculates a proprietary “Fair Ratio” of 51.12x, which is the P/E level that would be expected given factors such as the company’s earnings growth profile, profit margins, industry, market cap and specific risks.

This Fair Ratio is more tailored than a simple peer or sector comparison because it attempts to adjust for those business specific characteristics rather than assuming all Tech companies deserve the same multiple. Comparing the Fair Ratio of 51.12x with the current P/E of 21.36x indicates that, on this metric, the shares may be undervalued.

Result: UNDERVALUED

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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 linked directly to your own numbers for future revenue, earnings, margins and fair value.

On Simply Wall St, Narratives live in the Community page and give you a straightforward way to connect three things: your view of Super Micro Computer’s business, a financial forecast that matches that view, and a resulting Fair Value that you can compare with today’s share price to help you decide if the stock looks attractive or expensive to you.

Because Narratives on the platform are updated when new information such as news, guidance or earnings is added, you can see how different investors respond. For example, one Super Micro Computer Narrative currently anchors on a fair value of about US$16.91 per share, while another sits up near US$145.34 per share. Those very different stories, both built from explicit assumptions, show you exactly how and why reasonable people can look at the same stock and reach very different conclusions.

For Super Micro Computer however we will make it really easy for you with previews of two leading Super Micro Computer Narratives:

🐂 Super Micro Computer Bull Case

Fair value: US$74.53 per share

Implied discount to this fair value: about 58% compared to the last close of US$31.13

Revenue growth assumption: 50%

• Uses management guidance of US$23b revenue for 2025 and US$40b for 2026, then extends that to an estimated US$50b by 2028, combined with a 6.64% net profit margin and a forward P/E of 20x.
• Frames Super Micro Computer as a key AI server supplier, highlighting partnerships with NVIDIA, AMD, xAI and Intel, and exposure to areas like cloud, 5G and storage.
• Arrives at a fair value range of about US$74.70 on a 3 year view and US$126.52 on a 5 year view using the SWS Fair Value tool.

🐻 Super Micro Computer Bear Case

Fair value: US$16.91 per share

Implied premium to this fair value: about 84% compared to the last close of US$31.13

Revenue growth assumption: 33.93%

• Highlights risks from geopolitical tensions, supply chain disruption, concentrated customers and possible excess inventory if AI and server demand does not match expectations.
• Argues that commoditization of server hardware and intense competition could pressure pricing, keep margins relatively low and limit long term earnings potential.
• Backs into a bearish fair value of US$16.91 using revenue growth of about 33.93%, a profit margin of around 5.01%, a future P/E of 5.24x and a higher discount rate of 8.95% to reflect risk.

Together, these two narratives show how different assumptions on growth, margins, risks and P/E can lead to very different views on what Super Micro Computer might be worth. Your own view will sit somewhere along that range once you plug in the numbers you are comfortable with.

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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