SMCI Stock: Why This $34 AI Stock Has a $57 Price Target

SMCI at $34 and the $57 target

0:00 Super Micro closed Tuesday at $31.39 a share. It was trading around $34.46 after hours on the evening of November 3rd. And one Wall Street target says the stock is worth $57. That is the kind of gap that gets my attention because if your target is right you are looking at about a 65% upside from the after hours price. And the reason people are talking about it tonight is that this company just reported 19.9 billion of sales in a single quarter, which is almost four times what it did the same quarter a year ago.

0:29 So in this video, I am going to show you the bull case, I am going to tell you where that $57 number came from, and I am going to show you the one section of this earnings report that I think decides the whole thing. And that section is not the sales number… it is something most of the coverage tonight is going to skip right past. My name is Blake. I dig up stocks before the bull stampede, so you're not buying the top like Wojak. And today on 9to5investing, we're talking about whether this $34 stock can really get to $57.

0:55 Let's start with why people are so excited.

What Super Micro does

0:57 If you didn't already know, Super Micro, which trades under the ticker symbol SMCI, builds the servers and the data center systems that companies use to run AI and other heavy computing work. Their CEO, Charles Liang, described the company as "total AI and IT data center solution provider," which basically just means they want to sell you far more than a box. They want to sell you the whole setup. Time to online. Once online, then you can start to generate the profitability.

The growth numbers

1:23 And when you look at the growth, it is honestly hard to wrap your head around. In fiscal 2022, Super Micro did about $5.2 billion of sales for the entire year. Then it was 7.1 billion, then 15 billion, then 22 billion, and the fiscal year that ended this past June, it was 39.1 billion. And now in just one quarter, it did 19.9 billion, which is nearly what it did in all of fiscal 2025. Said another way, one quarter of business today is almost four full years of business from fiscal 2022.

1:51 Profit showed up too because the company reported $2.06 billion of operating income and $1.59 billion of net income for the quarter. And management is now guiding to 72 billion to 82 billion of sales for the fiscal year that ends next June. If you take the middle of that range, 77 billion, that would be nearly double last year. And keep in mind that this is what management is saying, not something that has already happened. So that is the bull case and it's a real one.

2:15 The company grew like crazy, it made money doing it, and it is telling you more is coming. But if you have watched this channel for any amount of time, you know I'm not going to stop there.

Where the $57 came from

2:24 So where does the $57 come from? According to a report from TradingKey, the firm Rosenblatt raised its target on Super Micro to $57 from $51 on October 21 with a buy rating. I have to give you a caveat because it is my goal to make this channel as honest and transparent as possible. I have not seen Rosenblatt's original note, so I can't tell you the assumptions behind that number or how long they think it would take to get there. That target also came out before this earnings report, so as of the time I'm recording this, I can't tell you whether they still stand behind it.

2:53 And TradingKey called $57 is the highest target on Wall Street, but I saw another site showing a high of $60, so the sources don't even fully agree with each other. The other thing you should know is that $57 is the high end of the range, not the typical opinion. Before these earnings came out, TIPRANK showed an average target of about $40.58 and out of 15 analysts it was 3 buys, 10 holds and 2 sells. So most of the analysts were not pounding the table on the stock.

3:18 Those numbers may very well change over the next few days because analysts tend to update their targets after a report like this. But I would much rather you hear all of that from me up front than see a big number on a thumbnail and assume it was a sure thing. The SEC actually has a line on this that I think is worth reading to you. The SEC cautions investors not to rely solely on any analyst's recommendation when making an investment decision. A target is one person's model and the distance to that price target is not going to be your expected return.

3:44 So now that we have that out of the way, let's look at what is actually in this report.

Gross margin fell to 12.7%

3:48 The first thing I looked at was gross margin, which basically just means how much of each sales dollar is left after paying the direct cost of what you sold. This quarter, Super Micro's gross margin was 12.7%. That means that out of every $100 of servers sold, about $12.70 was left over before paying for things like salaries and research. Last quarter, that number was $17.50. So sales went way up, but the amount the company kept on each dollar went down by almost 5 cents.

4:13 Now to be fair, a year ago this number was 9.30% so it's not like the business has collapsed. This margin moves around and that is kind of the point. Investors have a tendency to take the best recent quarter and assume it is permanent, and this quarter is a good reminder that it isn't.

My math on the guidance

4:27 The second thing I looked at was guidance and I want to walk you through some of the math that I did myself. For the December quarter, management is guiding to $19.5 billion to $21.5 billion of sales. So if you add the 19.9 billion they just reported to the 20.5 billion midpoint for next quarter, you get about 40.4 billion for the first half of the fiscal year. The full year midpoint is 77 billion, which would leave about 36.6 billion for the second half.

4:52 That works out to around 18.3 billion a quarter, which would actually be lower than the quarter they just reported. Now hold on because I could be wrong about what this means. Companies often guide conservatively, and the top of the range would get you closer to $20 billion a quarter, which would be more or less flat. But think about it, the story on this stock is hyper growth and even at the high end of management's own range, the back half of the year does not show a straight lineup.

5:15 I would want to hear how management explains that before I treated the full year number as bullish.

Who the profits belong to

5:20 The third thing is something I noticed because of my background as a CPA and auditor and that's who the profits actually belong to. Remember that $1.59 billion dollars of net income? If you simply divided it by the diluted share count of about 749 million shares, you would get about $2.13 a share. But the company reported $1.75 a share and that is not an error. It is because there are other claims that sit ahead of or alongside the regular shareholders.

5:45 First, about $76 million went to preferred earnings dividends, and preferred stock is basically a separate class of shares that gets paid before common shareholders do. Then, another roughly $252 million was allocated to what the company calls "participating holders," which basically just means other securities that get a share of the profits. So at the basic level, about 1.27 billion of that 1.59 billion was left for common shareholders, which means roughly one out of every $5 of profit went somewhere else first.

6:11 The diluted calculation then adds and subtracts a few more items to get you to that $1.75. There is also the share count itself. The basic weighted average was about 658 million shares and the diluted count was about 749 million shares. And that gap is a reminder that the number of slices in this pizza can definitely grow. The company also has about 4.67 billion of convertible notes, which are loans that can potentially turn into stock. All of this is why a low share price does not automatically mean that a stock is cheap.

6:38 A $34 stock can be expensive and a $500 stock can be cheap because the price alone tells you nothing until you know the shares, the debt, the cash and everything that stands in front of you.

Profit vs cash flow

6:48 And that brings me to the section that I believe matters the most. Super Micro reported 1.59 billion of net income this quarter and its operating cash flow was negative $434 million. So on paper, the company made well over a billion dollars, and yet more cash went out of the operating business than came in. How does that happen? Well, profit and cash are two different things. Allow me to explain. Imagine a contractor who finishes a kitchen remodel and sends a bill for $50,000.

7:15 That job counts as a sale, but until the check clears, the contractor can't spend that money, and they may have already paid for the cabinets out of pocket. That is basically what happened here, just with billions of dollars. The cash flow statement shows about $3.56 billion tied up in growing receivables. And receivables are just money that customers owe the company but haven't paid yet. It also shows about $2.48 billion going into inventory. As of September 30, the balance sheet showed 9.69 billion of receivables and 15.05 billion of inventory.

7:43 That inventory alone equals about three quarters of an entire quarter sales, sitting there waiting to be turned into a product and shipped. If you take operating cash flow and subtract the roughly $42 million spent on property and equipment, you get about negative $476 million for the quarter. That is my own simple calculation, not an official figure from the company. Meanwhile, the company had $6.9 billion of cash against about $8.6 billion of bank debt and convertible notes.

The fair counterargument

8:06 Now here is the fair counter argument. When a company is growing this fast, it is normal for cash to get tied up because you have to buy the parts before your customers can pay you. And there is a good sign in here too, because deferred revenue added about $3 billion to cash flow, and deferred revenue basically just means customers paid before receiving what they ordered. Customers are usually not going to be handing over billions of dollars in advance unless they really want the product.

8:27 So the bull case says this is temporary and that once these servers ship and those bills get paid, that cash comes flooding back. And the bear case says that the funding needs, the pressure on margins, and the potential dilution could eat up a lot of that growth before it ever reaches you as a shareholder. Both of those are interpretations and nobody knows for sure which one is right yet.

These numbers are preliminary

8:46 There is one more thing I have to flag and as a former auditor, this jumped off the page. The press release says "the unaudited financial information presented in this press release is preliminary." The company says its closing procedures aren't complete and that its independent accountant has not performed procedures on this data. That does not mean that anything is wrong, and I'm not implying that it does. All that I mean is that these numbers could change, so you should wait for the final filing and compare it to what you just heard tonight.

What I want to see next

9:11 So is this $34 stock heading to $57 a share? Nobody can predict the future and I'm certainly not going to pretend like I can. In my opinion, this is a story of real growth with a very open question about how much of it turns into cash for common shareholders. So here is what I would personally want to see before I got comfortable with a target like that. The first thing is the receivables because I want to see customers actually paying those bills.

9:33 The second thing is the inventory because I want to see that 15 billion turn into shipped product. The third thing is the gross margin because I want to see whether 12.7% is the floor or just another stop on the way down. And a fourth and final thing is the final filing, along with what analysts do with their targets now that they have this report. If operating cash flow turns strongly positive when margins hold up, then I think the bull case gets a lot stronger.

9:56 And if sales keep climbing but the cash keeps disappearing, then that big target starts to look a lot less meaningful, no matter how good the headline looks. This is just my opinion and not financial advice. Anything on this channel is never financial advice by the way, so please do your own research before you buy or sell anything. So what do you think? Is this cash squeeze temporary or is it the catch? Let me know in the comments and if you found this helpful, please consider subscribing to 9to5 Investing because it really helps the channel.

10:21 Thanks for watching and check out this video right here.