Super Micro Computer rated Neutral at Goldman Sachs as S&P 500 inclusion nears

Goldman Sachs initiated coverage on Super Micro Computer (NASDAQ:SMCI) shares on Monday with a Neutral rating as the artificial intelligence server company is slated to join the S&P 500.

Shares rose 16% in premarket trading on back of the index inclusion as part of the latest quarterly rebalancing.

Super Micro is an "AI winner," a team of analysts led by Michael Ng wrote, as it has a large roster of customers using GPU-specialized servers that have boosted its revenue and earnings power over the past two years.

"This helps to justify the stocks nearly 1,000% (11X) move since the beginning of 2023, which was driven by a 3X in earnings and multiple expansion to 32X NTM P/E that puts it in line with other AI enablers," the analysts wrote.

However, given the sharp run, Super Micro's shares are now seen as "fairly valued" as it trades "largely in line" with Nvidia (NVDA) at 32 times earnings. Revenue growth is also expected to slow from a 61% compound annual rate from 2021 to 2024 to 51% in 2025 and 9% thereafter.

"SMCI is very well positioned to serve demand from AI [cloud service providers] over the next few years, but serving enterprise AI infrastructure demand in the years after likely will be more competitive, particularly given more enterprise-focused IT hardware suppliers such as DELL and CSCO," the analysts wrote.

The analysts also put a $941 price target on the stock.