Excitement about artificial intelligence drove shares of CrowdStrike (NASDAQ: CRWD) and Super Micro Computer(NASDAQ: SMCI) to record highs earlier this year. But the stocks have since tumbled 31% and 34%, respectively.
CrowdStrike's losses happened quickly, precipitated by a faulty software patch that caused a global IT outage last weekend. Super Micro Computer's losses accumulated gradually following mixed financial results in the March quarter. But certain Wall Street analysts view the stocks as significantly oversold, and they expect shares to rebound sharply.
- In July, Ittai Kidron at Oppenheimer raised his price target on CrowdStrike to $450 per share, citing a robust product pipeline, including a new generative artificial intelligence assistant. His forecast implies 51% upside from its current share price of $263.
- In April, Ananda Baruah at Loop Capital raised his price target on Supermicro to $1,500 per share, citing increased confidence in its leadership position in artificial intelligence servers. His forecast implies 93% upside from the current share price of $776.
Investors should never set too much store by price targets, but CrowdStrike and Supermicro warrant further consideration. Read on to learn more.
CrowdStrike: 67% implied upside
CrowdStrike sells about two dozen cybersecurity software products through a single artificial intelligence (AI) platform. The company is best known for its leadership in modern endpoint security, a category concerned with protecting devices like desktops. CrowdStrike captured 21% market share in modern endpoint security software last year, and that figure will approach 24% this year, according to JPMorgan Chase.
Leadership in endpoint security is advantageous because endpoint devices are the primary source of threat intelligence for enterprises. As such, CrowdStrike has a material data advantage that (arguably) makes its AI models uniquely effective in detecting cyberthreats. CEO George Kurtz recently told analysts CrowdStrike has the "industry's most effective and accurate AI models to prevent attacks."
CrowdStrike is also gaining momentum in other markets. Analysts have recognized its prowess in cloud workload security, ITDR (identity threat detection and response), and MDR (managed detection and response). Beyond that, the company has one of the fastest-growing SIEM (security information and event management) products on the market, and its generative AI assistant (Charlotte AI) is gaining traction with customers, according to Kurtz.
Let's talk about the elephant in the room. On July 19, CrowdStrike pushed a defective update that caused millions of machines running the Windows operating system to crash. The massive IT outage disrupted businesses across numerous industries, from banks and airlines to hospitals and 911 call centers. Shares plummeted on the news.
Fortunately, CrowdStrike responded quickly and effectively. There may be further downside in the near term, such as legal action or difficulty winning new customers. But those headwinds should fade eventually. Malik Ahmed Khan at Morningstar wrote, "We think the pullback represents a good buying opportunity for long-term investors."
Going forward, Wall Street expects revenue to increase at 26% annually through fiscal 2027 (ends January 2027). That estimate makes the current valuation of 20 times sales look tolerable. Patient investors comfortable with volatility should consider buying a small position today. The stock may not return 67% over the next year, but I think CrowdStrike can beat the S&P 500 over the next three to five years.
Super Micro Computer: 93% implied upside
Super Micro Computer designs and manufactures high-performance computing platforms for data centers, optimized for use cases like data analytics and artificial intelligence. Its portfolio includes complete server and storage solutions, server subsystems like motherboards and chassis, and server management software. The company sources chips from suppliers like Nvidia and AMD.
Supermicro has emerged as a leader in the AI server market due to its internal design competencies and modular approach to product development. Specifically, the company manufactures and assembles most servers internally in Silicon Valley, which enables rapid prototyping and product launches. It also uses common building blocks across product lines, which allows its engineers to quickly build a broad range of products equipped with the latest chips.
Supermicro generally beats competitors to market with new technologies, often by two to six months. Jim Kelleher at Argus believes that advantage cements its leadership in AI severs. "Supermicro is emerging as a go-to provider for data center implementation of GPU computing infrastructure used in training large language models (LLMs), inference, deep learning, and other elements that enable generative AI applications," he wrote in a recent note to clients.
Supermicro reported mixed financial results in the third quarter of fiscal 2024 (ended March 2024). Revenue surged 200% to $3.85 billion, missing the $3.9 billion analysts anticipated. But non-GAAP earnings increased 308% to $6.65 per diluted share, topping the Street consensus of $5.57 per diluted share. Notably, CEO Charles Liang attributed the top-line shortfall to supply constraints, not a lack of demand.
Looking ahead, Wall Street expects Supermicro to grow non-GAAP earnings at 41% annually through fiscal 2026 (ends June 2026). That estimate makes the current valuation of 40.5 times non-GAAP earnings look quite reasonable. Investors should consider buying a small position in Supermicro today, but not with the expectation of a 93% return in the next 12 months. There is no guarantee the bears are done selling.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in CrowdStrike and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, CrowdStrike, JPMorgan Chase, and Nvidia. The Motley Fool has a disclosure policy.
