Super Micro Computer (SMCI -5.15%) has become a battleground stock for artificial intelligence (AI) investors. While the company's share price has climbed roughly 98% over the last year, it's also down 60% from the high that it reached earlier this year.
Supermicro has continued to benefit from AI-driven demand for its high-performance rack servers, but its gross margin has recently been on a downward trend. Adding another bearish catalyst, the company delayed the filing of its 10-K report to "complete its assessment of the design and operating effectiveness of its internal controls over financial reporting." But even though Supermicro is a relatively high-risk stock, it could be poised to deliver stellar returns for risk-tolerant investors.
Despite uncertainty on the horizon, Supermicro stock looks cheaply valued
Supermicro's management has said that it does not anticipate the need to materially alter previously published results for its last fiscal year when it eventually files its 10-K report, but the delay has meant that some questions about the company have remained unanswered. Additionally, it's possible that competition or cyclical shifts in the AI server market could hurt the business. But there are signs that Supemicro stock is actually cheaply valued.
SMCI PEG Ratio (Forward) data by YCharts
Supermicro stock is trading at a forward price-to-earnings-growth (PEG) ratio of approximately 0.21. For reference, a price-to-earnings-growth ratio below 1 is often viewed as a sign that a stock is undervalued because profits are growing quickly compared to the company's valuation. The company's forward price-to-earnings multiple also looks low, coming in at approximately 14.
In addition to possible regulatory concerns, the low earnings multiples and PEG ratio reflect concerns that the company's business will quickly be hit by cyclical headwinds. But there are indications that demand will remain quite strong in the near future. Supermicro has recently reported strong shipment numbers for its servers and liquid-cooling systems, and the company also announced new servers built using Nvidia's next-generation processors.
With a promising near-term sales outlook and shifts in the product mix that could help bolster gross margin, Supermicro stock could deliver big wins.
