We came across a bullish thesis on Super Micro Computer, Inc. (SMCI) on Substack by Taylor Nichols. In this article, we will summarize the bulls’ thesis on SMCI. Super Micro Computer, Inc. (SMCI)’s share was trading at $34.26 as of March 28th. SMCI’s trailing and forward P/E were 14.90 and 9.39 respectively according to Yahoo Finance.
A close up of a computer server rack powering the backbone of a wireless infrastructure.
Super Micro Computer (SMCI) has evolved from a Silicon Valley startup into a global leader in high-performance server and storage solutions, capitalizing on transformative technologies such as AI, blockchain, cloud computing, and 5G. Its modular “building block” approach allows customers to tailor systems to specific workloads, giving it a competitive edge over traditional server vendors. By integrating cutting-edge GPUs from Nvidia faster than competitors and leveraging a direct sales model, SMCI has carved out a unique market position. This strategy has translated into explosive financial growth, with fiscal year 2024 revenue reaching $14.99 billion, more than doubling from $7.12 billion the previous year. Despite this rapid expansion, SMCI has maintained profitability, demonstrating disciplined financial management. Its historical financial performance reflects a company that, after years of stagnation, has entered a phase of sustained, high-margin growth, reinforcing its sustainable business model.
While margin compression occurred in 2024 due to investments in capacity expansion, these expenditures are strategic, positioning SMCI for future profitability. Its engineering-driven culture has allowed it to stay ahead of the competition, particularly in AI-driven infrastructure. SMCI’s early adoption of systems optimized for Nvidia’s H100 GPUs has positioned it as a key player in AI computing. Additionally, the company is leading in liquid cooling technology, an increasingly critical component of high-performance computing. Its investment in a new Silicon Valley campus dedicated to liquid-cooled solutions underscores its commitment to innovation. With growing demand for AI computing, hyperscale data centers, and enterprise AI adoption, SMCI’s market expansion potential remains vast. The company’s international expansion, including new manufacturing facilities in Taiwan and the Netherlands, strengthens its global reach while ensuring cost efficiency and quality control.
Operational efficiency is another key strength, with SMCI generating $3.6 million in revenue per employee, significantly outperforming competitors like Dell and HPE. Strategic partnerships, particularly with Nvidia, have allowed it to secure scarce AI hardware while rivals struggle with supply constraints. This has enabled SMCI to rapidly gain market share of 10.55% in the overall server market in 2024. Its presence in AI infrastructure is even stronger, holding a 15.2% share, reflecting its growing dominance in an industry traditionally led by Dell, HPE, and Lenovo. The company’s inclusion in the S&P 500 and NASDAQ-100 in March 2024 has attracted institutional interest, further supporting stock performance.
Despite its rapid ascent, SMCI has faced multiple controversies that investors must consider. In 2018, Bloomberg alleged that Chinese subcontractors had implanted malicious microchips in SMCI’s servers, but these claims were never substantiated. The company also faced regulatory scrutiny in 2006 for violating U.S. export laws by selling systems to Iran, leading to a fine and the implementation of stricter controls. More recently, in 2025, short-seller Hindenburg Research accused SMCI of accounting irregularities, and a delayed financial filing led to a non-compliance notice from Nasdaq. In response, SMCI has strengthened its financial controls, hired additional personnel, and upgraded its IT systems, signaling a commitment to transparency and compliance.
SMCI represents a compelling investment opportunity at the intersection of AI infrastructure and high-performance computing. Analysts maintain a wide range of price targets, from $15 to $70, reflecting uncertainty but also the stock’s potential for significant upside. The recent financial reporting issues have likely contributed to the stock’s volatility, but history suggests such overreactions can present attractive entry points for long-term investors. As SMCI addresses its reporting concerns, lower-end analyst estimates may be revised upward, leading to a stock rerating.
The company’s strategic direction focuses on innovation in AI-optimized systems, rack-scale design, and liquid cooling, while expanding manufacturing capacity to meet surging demand. Taiwan plays a crucial role in this expansion due to its integration with the AI supply chain. SMCI’s vendor-neutral approach allows it to integrate emerging AI hardware efficiently, maintaining its rapid time-to-market advantage. As enterprise AI adoption grows, demand for energy-efficient data centers expands, and edge computing gains traction, SMCI stands to benefit from multiple macro trends. Its ability to scale while maintaining efficiency gives it an edge over legacy competitors, and its lean R&D spending relative to peers results in superior innovation with less capital expenditure.
Financially, SMCI remains attractively valued despite its rapid growth. With a P/E ratio of ~15, it trades at a significant discount compared to high-growth tech firms. A discounted cash flow (DCF) analysis suggests a potential 50% market cap increase by 2027 under conservative growth assumptions. If SMCI continues expanding aggressively, reaching $95 billion in revenue by 2035, the stock could compound at an annual rate of 9.8% to 17.4%, depending on market conditions. Traditional valuation methods struggle to capture SMCI’s potential fully, but relative market multiples suggest the stock could double if investors reassess its P/E multiple in line with other high-growth tech companies.
One consideration for investors is SMCI’s moderate share dilution, with outstanding shares increasing at a rate of ~1% per year. While dilution is a factor, it remains manageable given the company’s high revenue growth and strategic reinvestments. While SMCI has not yet prioritized free cash flow maximization, its rapid scaling suggests profitability will improve once expansion stabilizes.
Technically, SMCI’s stock has been under pressure, declining 66% over the past year and 37% in the past month alone. The combination of financial reporting concerns and broader market weakness has weighed on the stock. While key moving averages indicate consolidation, downside risk appears limited, making SMCI an attractive opportunity for long-term investors willing to weather volatility.
In summary, SMCI offers a unique opportunity for AI-focused investors at a compelling valuation. Its rapid market share expansion, technology leadership, and improving financial metrics position it well for sustained growth. While near-term volatility persists, the company’s long-term outlook suggests significant upside. As SMCI continues executing on its strategy and market sentiment shifts, investors who recognize its critical role in AI infrastructure may find its current valuation an attractive entry point. With continued execution and potential multiple expansion, SMCI could emerge as one of the biggest winners in the AI infrastructure boom.
Super Micro Computer, Inc. (SMCI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 45 hedge fund portfolios held SMCI at the end of the fourth quarter which was 33 in the previous quarter. While we acknowledge the risk and potential of SMCI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SMCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
