Momentum investors are often sentiment-driven, as they must not only recognize when a stock’s trend has peaked or bottomed but also gauge when market sentiment has reached extreme optimism or pessimism.
With that in mind, shares of Super Micro Computer Inc. (NASDAQ: SMCI) now represent one of the best risk-to-reward ratios in the technology sector for the United States, not only due to their extremely low price relative to previous highs but also because of their valuation multiples compared to where the company’s product and service demand is potentially headed in the coming months.
Themes in the artificial intelligence space, particularly for names like NVIDIA Co. (NASDAQ: NVDA) and others, have been challenged by the new claims coming out of Chinese company DeepSeek. However, it is clear thus far that no concrete evidence points to these claims being a reality, so the longer-term industry growth is relatively intact. Here are the three main reasons Super Micro Computer’s discount won’t last long.
Not the First Rodeo for Super Micro Computer
In a competitive industry like technology, it is not uncommon to see companies fall victim to accounting scandals, especially when it comes to revenue. In order to meet financial goals and accurately manage tight demand schedules, some companies may choose to undertake their own ways of revenue recognition in accounting terms.
While this might be considered a negative, it hasn’t been done before, so investors have a history to look back on and know that it isn’t always fraudulent. Super Micro Computer faced similar accusations in 2018 and 2020, coming out of them unscathed and better than before.
Knowing this, today’s allegations, which have brought the stock down to a dismal 20% of its 52-week high, might not have the long-lasting impact that most of the market is predicting they will. But that’s not the only reason to believe that Super Micro Computer stock might recover from this horrendous fall.
Tapped to All Tail Winds in Technology
Despite the recent scandals involving Chinese technology, one thing remains true. Demand for data centers and hardware to host these new artificial intelligence models for training will also help Super Micro Computer’s main customers surge.
That being said, as NVIDIA, Advanced Micro Devices Inc. (NASDAQ: AMD), and other such chipmakers see their orders come through in this growing industry, chances are that Super Micro Computer’s billings will follow suit. Even with their own way of revenue recognition, the company is still posting revenue growth that seems to be okay with Wall Street analysts.
This is why there is a consensus earnings per share (EPS) forecast for up to $1.13 a share for the third quarter of 2025, meaning a net growth rate of as much as 23% from today’s $0.92 level. If analysts, who undertake a lot of the financial analysis work, saw a discrepancy in Super Micro Computer stock numbers, this forecast would have probably been changed long ago.
It seems the market is also over-discounting the stock based on how its valuation multiples compared to the rest of the industry. At 14.6x price-to-earnings (P/E) ratio, Super Micro Computer stock trades well below the industry's 40.6x average valuation.
That makes it a fantastic risk-to-reward setup in its price action and the steep discounts next to the entire peer group.
Lots of Upside, Very Little Downside Risk
The third and final reason investors should consider Super Micro Computer stock for a potential turnaround is the risk-to-reward ratio at today’s prices. The low price in relation to 52-week highs makes it an attractive proposition in itself, but so is the fact that it has bottomed since late 2024.
If the news had not already been priced in, the stock would have gone much lower than its $17.25 bottom in October 2024. Knowing this is the setup today, Citigroup analysts felt comfortable reiterating their Buy rating on the company while keeping a valuation of up to $175 a share, calling for a net rally of as much as 53.1% from today’s discount.
As another gauge to consider, investors can look at the recent media mentions for Super Micro Computer stock over the past month. These mentions grew from 31 to the start of January 2025 and rose to a high of 128 for the first week of February 2025. This might signal that many willing buyers might be searching for answers, and now investors have three of them today.