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Is Super Micro Computer Inc (SMCI) a super buy at $43?

February 10, 205

Is SMCI a super buy at $43?

Yes, we believe so. As a disclaimer, we are currently holding Super Micro Computer Inc (SMCI) in the Creatix fund. The stock had been battered down due to accounting irregularity concerns and the potential delisting from NASDAQ. SMCI offered to release a report by tomorrow February 11, 2025 addressing its financials. Today, the stock experienced a 17.65% price increase, closing at $42.65. Chances are that market players got an early word about the report and that it will bring good news. Additionally, SMCI announced today the full ramp-up of production for its AI data center, utilizing NVIDIA's Blackwell platform. This development has further boosted investor confidence in the company's growth prospects. These factors combined have contributed to the notable rise in SMCI's stock price today.

SMCI's accounting issues 

        1. Between 2014 and 2017, the company engaged in improper accounting practices, including prematurely recognizing over $200 million in revenue. This led to a $17.5 million settlement with the Securities and Exchange Commission (SEC) in August 2020.

        2. In August 2024, Hindenburg Research accused SMCI of ongoing accounting manipulations and related-party transactions. Following these allegations, the company delayed filing its annual report, causing a significant stock decline of about 20%. 

        3. In October 2024, Ernst & Young (EY) resigned as SMCI's auditor, citing concerns over internal controls and financial reporting transparency. This resignation led to increased doubts about SMCI's financials causing an even more significant stock price decline of 33%.

In November 2024, an internal review by SMCI found no evidence of fraud or misconduct among its leadership. The company announced plans to enhance governance by seeking new leadership positions, including a Chief Financial Officer and Chief Compliance Officer. SMCI had lost over 70% in value. On November 28, 2024, the stock closed at $32.64, representing a 72.5% reduction when compared to SMCI's all-time high closing price of $118.81 on March 13, 2024. 

SMCI's Opportunity

At a "clearance price" of 70% off in December 2024, Creatix and other financial analysts recommended buying SMCI. The average target price was $50.06, indicating a potential upside of 45.4% from the prevailing prices of about $34 at the time. A December 28, 2024 article from The Motley Fool suggested that while investors might want to wait for more information before making a decision, SMCI shares appeared attractive going into 2025 and beyond. 

As of February 10, 2025, Super Micro Computer Inc. (SMCI) has received varied assessments from financial analysts, reflecting both optimism about its market position and concerns over recent challenges.

The consensus rating for SMCI is still a "Hold" based on evaluations from 18 analysts. Within this group, 2 analysts recommend "Sell," 11 suggest "Hold," 4 advocate "Buy," and 1 advises "Strong Buy." The average 12-month price target is $62.89, with estimates ranging from a low of $23.00 to a high of $135.00. Some notable analysts include:

  • Zacks. According to Zacks, 14 analysts have set an average price target of $49.56 for SMCI, with projections spanning from $15.00 to $100.00. 
  • MarketWatch: According to MarketWatch, SMCI's average target price is $35.13, based on evaluations from 10 analysts. 
  • Wedbush Securities: Analyst Matt Bryson expresses concerns regarding SMCI's financial reporting and potential delisting from Nasdaq. He has adjusted his price target from $62 to $32, maintaining a "Neutral" stance. 
  • Needham & Company: Analyst Quinn Bolton maintains a "Buy" rating with a price target of $600. He highlights SMCI's leadership in GPU-based systems and liquid-cooled solutions, anticipating significant growth driven by the adoption of generative AI technologies. 
  • J.P. Morgan: Their most recent report of December 31, 2024, by analyst Samik Chatterjee still weighs heavily against SMCI. The stock was described as "Underweight" with a price target of $23, citing uncertainties related to accounting issues and potential delisting from NASDAQ. 

These diverse perspectives underscore the importance of thorough research and consideration of both the opportunities and risks associated with SMCI before making investment decisions. Understandably until SMCI can clear the accounting cloud over its head, the majority of analysts will remain cautious.  

Tomorrow February 11, 2025 is Critical for SMCI shareholders 

SMCI has scheduled a fiscal update for February 11, 2025. This update is highly anticipated by investors due to the company's ongoing accounting issues and Nasdaq's deadline of February 25, 2025 for SMCI to submit a revised annual report and avoid delisting. Investors are hopeful that tomorrow's update will provide clarity on SMCI's financial status and its plans to meet the Nasdaq deadline. Based on today's market action, word in the Street and pre-report leaks are probably positive. Being that we are still very much in the AI bubble, with most institutional investors looking to put money on AI stocks to avoid missing out, we are confident in SMCI's upside potential. It should not be surprising to see the stock getting up to about $59 (37% increase from today's closing; and about 50% off the record closing high) within the next 6 months.

We'll see. Stay tuned. 

www.creatix.one

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