With shares down an eye-watering 71% from an all-time high of $119 reached in March, Super Micro Computer (SMCI -5.22%) trades at a substantial discount from its peak. Shares are reeling after allegations related to the company's accounting practices and other challenges.
Yet despite the bad press, Supermicro's business continues to boom amid soaring artificial intelligence (AI)-related demand. Will this be enough to save the stock? Let's dig deeper to see how the company might perform in 2025 and beyond.
2024 was a challenging year for Supermicro
Supermicro is an excellent example of how quickly a Wall Street darling can fall from grace. The crisis started on Aug. 27, when short-selling organization Hindenburg Research released a report accusing the computer hardware maker of accounting manipulation, self-dealing, and sanctions evasion related to the Russian invasion of Ukraine.
The next day, Supermicro announced it would delay filing its fourth-quarter report, citing a need to assess the effectiveness of its internal controls. Shortly afterward, its auditor Ernst & Young resigned. These events raised suspicions further and introduced the possibility that the company might be delisted from the Nasdaq, which could hurt its liquidity and make shares less attractive to institutional investors.
While Supermicro's stock price has collapsed over the past few months, there has been some light at the end of the tunnel. For starters, the company found a new auditor (BDO USA). And on Dec. 6, it received an extension from the Nasdaq, giving it until Feb. 25 to file its delayed annual reports. Meanwhile, business still seems to be booming.
Operational momentum remains fantastic
Supermicro's big break may have come in November, when an independent special committee released unaudited earnings data. The company expects fiscal first-quarter sales from $5.9 billion to $6 billion. While this is below the previous guidance of $6 billion to $7 billion, it represents a 180% growth rate compared to the prior-year period.
Supermicro's growth rate dwarfs other AI leaders like Nvidia and Advanced Micro Devices, which saw their top lines grow by 94% and 17%, respectively, in their most recently reported quarters. Supermicro's explosive momentum is likely to continue because of its picks-and-shovels exposure to the AI opportunity.
Image source: Getty Images.
Super Micro turns graphics processing units (GPUs) made by Nvidia and other chipmakers into ready-to-use computer servers for data centers, giving it a middleman role in the AI hardware market. Next-generation AI GPUs like Nvidia's Blackwell or AMD's MI350 will likely boost demand for its servers because their technical advantages could make them must-have items for companies that wish to remain competitive.
For example, AMD's new MI350 chip is expected to perform 35 times better in inference (the process of generating generative AI responses to queries) compared to predecessor the MI300.
Supermicro's valuation is extremely low
In December, Supermicro's independent special committee claimed to have found no evidence of managerial misconduct and confirmed that they expect no restatement of previously reported financial data. While investors should take everything with a grain of salt, the fact that outside counsel is willing to vouch for Supermicro is a huge boost to its credibility.
And if investors take the company's expected earnings at face value, its shares look remarkably cheap. With a forward price-to-earnings (P/E) of just 9.9, shares trade at less than half the S&P 500's (^GSPC -1.11%) average estimate of 24. This is a stunningly low valuation for a company growing at a triple-digit rate.
Investors may want to wait for more information before pulling the trigger, but Supermicro shares look attractive going into 2025 and beyond.
