Argus Research analyst Jim Kelleher initiated coverage on Super Micro Computer, Inc ( SMCI ) with a Buy rating and a price target of $1,350. The stock price climbed after the re-rating.

As per the analyst, Super Micro is a leading computer and server provider for the age of generative AI. 

In addition to a full line of rack and blade servers for cloud, enterprise, data center, and other applications, Super Micro provides GPU-based systems for deep learning, high-performance computing, and other applications.

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The analyst noted that Super Micro is experiencing accelerating revenue, particularly earnings growth, as demand for its server and computing solutions expands rapidly. 

He said that Super Micro has been growing earnings at an average annual rate of 53% in recent years, while the Tech industry earnings are growing at low double-digit percentages.

CEO Charles Liang stated that Super Micro’s 37% year-over-year revenue growth for fiscal year 2023 validates the company’s “global leadership position in AI accelerated compute platforms.” 

Generate AI is driving unprecedented demand for SMCI’s advanced applications requiring optimized rack-scale solutions, and the company is on track for 100%-plus revenue growth for fiscal 2024, he stated.

Despite the stock price explosion, the analyst flagged SCMI valuations have not soared out of sight. 

Repeating the pattern of Apple Inc ( AAPL ) , Amazon.Com Inc ( AMZN ) , and most recently, Nvidia Corp ( NVDA ) , Super Micro’s revenues are growing much more rapidly than its costs, creating an environment for meaningful earnings growth, as per the analyst. 

The company’s significant operating leverage on its fast-growing sales base drives margin expansion and leads to rapid EPS acceleration.

Although the SMCI shares are not inexpensive, he noted prospects for near-term and long-term growth justify investment in the shares at current levels.

Investors can gain exposure to SMCI via Invesco S&P MidCap Momentum ETF and IShares U.S. Digital Infrastructure And Real Estate ETF .

Price Action: SMCI shares traded higher by 4.41% at $1,138.20 on the last check Wednesday.

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