Why an AI stock that’s up 764% over the past year has another 18% upside, according to JPMorgan

• Super Micro Computer has soared 764% over the past year, and JPMorgan thinks there’s more upside.

• The bank said Super Micro Computer is disrupting the traditional server market via its AI server stack.

• “We expect the leadership to continue, led by a balance of custom built solutions and fast time to market,” the firm said. 

The sharp rise in Super Micro Computer stock over the past year is not going to slow down anytime soon, according to JPMorgan.

The bank initiated Super Micro Computer stock with an “Overweight” rating and a $1,150 price target on Monday, representing potential upside of 18% from Friday’s close. Shares jumped about 6% on Monday following the bullish initiation report from JPMorgan.

“Super Micro is the leading company in the AI compute market, which is burgeoning with demand stemming from training AI models, Retrieval-Augmented Generation by Tier 2 CSPs and Enterprises, and eventually AI inferencing workloads,” JPMorgan said.

Shares of Super Micro Computer have surged 764% over the past year as its AI server business has boomed. The sharp rise in the company’s stock price has catapulted the San Jose-based company from the small-cap Russell 2000 index to the large-cap S&P 500 index, giving it a market valuation of about $60 billion.

JPMorgan expects Super Micro Computer’s recent dominance to continue as it disrupts the traditional server market with its AI-capable server stacks.

“We expect the leadership to continue, led by a balance of custom built solutions and fast time to market, although potential upside is more likely from rapid expansion in the AI Server market rather than expansion of the already premium valuation multiple,” JPMorgan said.

The AI company trades at a forward price-to-earnings ratio of about 34x, which is well ahead of the S&P 500’s forward price-to-earnings multiple of about 20x. But that premium valuation multiple appears to be justified by Super Micro Computer’s astonishing growth, with JPMorgan forecasting a 43% revenue compounded annual growth rate through 2027.

“The 2027 revenue forecast implies that Super Micro will have 10%-15% share of the AI Server market, which we view as conservative given its early lead,” JPMorgan said. “We believe investors should own the AI Server theme given the rapid expansion of the overall market and potential upside to earnings.”

Read the original article on Business Insider