On Monday, Mizuho Securities initiated coverage on Super Micro Computer (NASDAQ:SMCI), assigning the stock a Neutral rating and setting a price target of $450.
The firm highlighted the role of AI servers in the burgeoning generative AI market, which is expected to expand to an estimated $406 billion by 2027, advancing at a compound annual growth rate of approximately 54%. This growth is largely attributed to the increasing demands of Cloud Service Providers (CSPs) and enterprise clients.
Super Micro Computer, acknowledged as a leader in the AI server market, is facing challenges including market share loss, margin pressures, negative free cash flow, and issues with internal controls, such as delays in filing their 10-K. These factors contribute to the Neutral rating despite the company's prominent position in a rapidly growing industry.
Mizuho contrasted Super Micro's situation with that of Dell Technologies (NYSE:NYSE:DELL), which they believe is in a stronger position due to its diverse portfolio that includes servers, PCs, and storage solutions. Dell also boasts a more robust balance sheet, solid free cash flow, and effective working capital management. As a result, Dell has been given an Outperform rating with a price target of $135.
"We see GenAI growing exponentially, supporting secular growth in the AI server market. However, we see profitability risks from low differentiation, a concentrated customer base, and increasing competition," the analysts added.
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