Super Micro Computer (NASDAQ: SMCI) started this year off with strength. Earnings were soaring, and in the months that followed, the S&P 500 and the Nasdaq 100 invited the stock to join. Share performance even topped that of market darling Nvidia . The stock climbed 188% in the first half of the year compared to Nvidia's 149% increase.
But times have been tougher for Supermicro in recent weeks. A research firm with a short position in the stock issued a report alleging troubles at the company. Around the same time, in an unrelated move, Supermicro delayed the filing of its 10-K annual report. And more recently, The Wall Street Journal reported that the Justice Department had launched a probe into Supermicro.
All of this has weighed heavily on Supermicro, dragging the shares down 25% since the short report in late August. And that has the market wondering what's next for this technology company. My prediction is this is where Supermicro is headed in 2025...
Image source: Getty Images.
Supermicro's earnings growth
Before I talk about my prediction, though, let's take a look at a little background on Supermicro's path so far. This tech company isn't a new kid on the block, and instead, has been around for more than 30 years, selling workstations, servers and other equipment. Supermicro steadily increased its revenue and became profitable over time, but earnings really took off over the past couple of years as the artificial intelligence (AI) boom accelerated.
SMCI Net Income (Annual) data by YCharts
Companies building AI platforms turn to Supermicro for their data center needs -- and Supermicro's strategy has helped it emerge as a winner, delivering a growth rate over the past 12 months that's five times faster than the industry average.
Why is the company so successful? Supermicro works hand-in-hand with top chip designers along their development process so that it can immediately integrate their innovations into its products. Also, Supermicro's "building blocks" technology -- with most products sharing common parts -- makes it faster for the company to tailor a particular product to a customer's needs.
All of this helped Supermicro deliver quarterly revenue this year that surpassed a full year of revenue as recently as 2021. And considering the projected growth of the AI market -- forecast to expand from $200 billion today to $1 trillion by the end of the decade -- Supermicro could continue to see revenue climb.
A short report and other headwinds
Of course, the negative news of the past several weeks remains a headwind right now. Let's consider the details. Hindenburg Research, in its short report, alleged "glaring accounting red flags" and other problems at Supermicro. It's important to note that Hindenburg holds a short position in Supermicro, meaning it will benefit if the stock declines -- and this makes it difficult for us to rely on Hindenburg for unbiased information. Also, Supermicro responded to the report, saying claims were "false or inaccurate" and pledged to further address it in "due course."
As for the delayed annual report, Supermicro also spoke further on this, saying it doesn't expect significant changes to its earnings figures. That should ease investors' minds.
Finally, regarding the potential Justice Department probe, The Wall Street Journal cited people familiar with the matter -- but a probe hasn't been confirmed. And the Journal said spokespeople for Supermicro and the U.S. attorney's office declined to comment.
My prediction for 2025
Considering all of this, my prediction for Supermicro in 2025 is as follows. Right now, it's impossible to say whether the Justice Department has launched a probe. If it has and if it finds problems, this could weigh on the stock -- but only the extent of potential troubles would tell us to what degree.
There are a lot of "ifs" there, though, and I prefer to go with what we actually know so far. And what we do know is that Supermicro's business has been strong in recent years, and demand from AI customers continues. In fact, these customers now are looking for cooling technology for their AI data centers -- and Supermicro is a specialist. This could represent a whole new wave of growth for the company as of 2025.
On top of this, Supermicro, which reported a lower gross margin in the recent quarter, aims to open a new Malaysia factory at the end of this year -- a move that should reverse that trend with its focus on high volume and low cost.
So, my prediction is, if allegations concerning the company aren't confirmed, Supermicro's earnings and stock price could surge in 2025. The average Wall Street estimate calls for an 87% increase in the coming 12 months, and if recent troubles don't gain traction, I think the stock could meet those expectations.
Does this make Supermicro stock a buy ? Possibly -- if you're an aggressive investor. Otherwise, though, and especially if you're a cautious investor, it's important to remember that the stock remains risky right now. And that means it's probably a good idea to wait for further clarity concerning the recent headwinds before picking up shares of this AI stock.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy .
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