1 Wall Street Analysts Think Supercomputer Shares Will Rise to $1,500. Buying near $883?

Server ManufacturerSupercomputer, Inc. (NASDAQ resonance code: SMCI)Earlier this year it was included in theStandard & Poor's 500Index. Although the company has been in business for decades, surging demand for servers capable of running AI workloads has pushed Supermicro's revenues and profits to new heights.

Analysts at Loop Capital cite Supermicro's inclusion in the S&P 500 as a reason to support its high valuation, and Loop Capital maintained a "buy" rating on the stock on Tuesday, while raising its price target from $600 to $1,500. Based on this new price target, Supermicro stock has 70% of upside.

Chantry's $40 Billion in Revenue

Loop Capital estimates that Supermicro's annual revenue for fiscal year 2026 will reach $40 billion. The company's most recent quarterly revenue was $3.66 billion, which puts its current annual revenue run rate at nearly $15 billion.

Loop Capital also believes that Supermicro could trade at a price-to-earnings ratio of 20 to 30 times going forward, noting that the company is included in the S&P 500 index. The analyst consensus estimate for Supermicro is for adjusted EPS of $22.10 for the current fiscal year.

Is Supermicro stock worth buying?

It's a big question: how sustainable are Supermicro's profits? The company operates in an industry with very low margins: gross margins are hovering around 10% and have been declining in recent quarters.

As the AI server market explodes, competition from direct competitors and cloud computing companies designing their own systems will almost certainly intensify. Supermicro won't be able to keep translating annual revenues forever.

Supermicro has managed to capitalize on the AI wave, but it's important to remember that there's still a lot of uncertainty about what the AI server market will look like in five years. Investors should keep this in mind before buying this stock.

Should you invest $1,000 in a supercomputer company right now?

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Timothy Green does not own any of the shares listed above.The Motley Fool does not own any of the shares listed above.The Motley Fool has a disclosure policy.

1 Wall Street analysts see Supercomputer shares rising to $1,500. Originally published in The Motley Fool.