Super Micro Computer surged following Nvidia’s capacity update. Is SMCI stock a buy, sell, or hold?

Super Micro Computer (SMCI) has experienced a strong stock rally for the second consecutive session after revealing plans to ramp up full production of its AI data center solutions, integrated with NVIDIA’s Blackwell platform. This follows the company’s announcement that it will provide a fiscal second-quarter business update after markets close on Tuesday, Feb. 11.

However, SMCI’s recent surge comes after a turbulent period marked by major setbacks. The company has been dealing with the fallout from a damning report by the now-defunct short-seller Hindenburg Research, the resignation of its auditor, and the looming risk of delisting from Nasdaq due to delayed financial filings. With its stock down nearly 50% over the past year, many investors are now questioning whether SMCI is on the path to recovery or if more challenges lie ahead.

Reasons to Buy SMCI Stock

1. AI Market Growth – As a leader in high-performance server and storage solutions for AI, cloud computing, and enterprise IT, SMCI is well-positioned to benefit from the expanding AI server market, projected to grow at an 18% CAGR, reaching $177.4 billion by 2032.

2. Addressing Compliance Issues – The company has taken steps to resolve regulatory concerns by submitting a compliance plan to Nasdaq, appointing BDO as its new auditor, and demonstrating a commitment to transparency, potentially reducing investor risk.

3. Competitive Edge – SMCI’s modular server design enables rapid customization, setting it apart from competitors. With over 100,000 GPUs shipped per quarter and 2,000 liquid-cooled racks delivered since June 2024, its leadership in energy-efficient cooling solutions strengthens its market position.

4. Attractive Valuation – SMCI trades at 11.34x forward earnings and 0.75x forward sales, making it appear undervalued despite uncertainties. If it overcomes its challenges, the stock has significant upside potential.

Reasons to Sell SMCI Stock

1. Financial Reporting Delays & Weak Q1 Guidance – SMCI delayed releasing its Q1 fiscal 2025 results, then lowered revenue guidance from $6-$7 billion to $5.9-$6 billion, along with reduced earnings per share expectations.

2. Regulatory & DOJ Scrutiny – The resignation of EY and an ongoing Department of Justice investigation have damaged investor confidence. Additionally, SMCI was previously delisted from Nasdaq in 2018 for similar filing delays, leading to a shake-up in leadership.

3. Competitive Pressure & Funding Challenges – Regulatory issues have allowed competitors to gain market share. Additionally, raising capital has become difficult, limiting SMCI’s ability to expand production to meet demand in the capital-intensive AI server industry.

4. Delisting Threat – A potential Nasdaq delisting could trigger a sharp sell-off, as institutional investors may be forced to offload their shares.

Analyst Outlook on SMCI

Wall Street analysts currently rate SMCI as a “Hold,” with a mean target price of $49.56, suggesting a 46.5% upside from current levels. However, sentiment is mixed: out of 12 analysts covering the stock, only 2 rate it a “Strong Buy,” 1 as a “Moderate Buy,” 8 as a “Hold,” and 2 as a “Strong Sell.”

Bottom Line

SMCI's recent stock surge reflects optimism about its AI expansion, but risks remain due to regulatory concerns, financial uncertainties, and competitive pressures. Investors must weigh the company’s potential for growth against the challenges it faces in an increasingly competitive market.