AI Stocks on the Rise? Analysts Predict Substantial Upside Potential in Spite of Stock Splits
The investment community remains enthusiastic around the possibilities artificial intelligence presents, and even though stock splits may signal weak performance in the short term, some analysts on Wall Street are bullish on two key players. Super Micro Computer (SMCI) and Arista Networks (ANET) are both majorly intertwined with the AI boom and appear to be on track for substantial gains in the subsequent year, making AI investing particularly interesting.
The Stock Split Conundrum: A Short-Term Performance Drop?
It’s also important to highlight that both Super Micro Computer and Arista Networks recently performed stock splits. Super Micro Computer executed a 10-for-1 split in October 2024 while Arista Networks completed a 4-for-1 split in December 2024. More importantly, these splits run counter to the expected norm; both stocks have underperformed the S&P 500 since their respective announcements. On average, stocks that split outperform the benchmark index by about 13 percentage points in the year following the split. While analysts believe this trend might have some staying power, that is changing.
Super Micro Computer: Sideways and Down, Cash to Burn
Loop analyst Ananda Baruah is bullish on Super Micro Computer, which has recently hit Supermicro with a $70 target price, representing an astounding upside of 105% from the current $34 share price. This positive view is bolstered by Supermicro’s commanding AI server market share amidst AI server market growth.
Super Micro Computer’s AI Edge
With a focus on building datacenter servers, Supermicro manufactures liquid-cooled AI server racks and modular AI servers. Due to the company’s in-house manufacturing capabilities and vertical integration policies, Supermicro is leading the AI server market, which, according to Statista, will grow at a 30% CAGR till 2033.
Speed to Market: A Key Advantage
Rosenblatt analyst Hans Mosesmann pointed out Supermicro’s speed in getting new products to market. The company’s use of standard electronic components across product lines enables quick server builds to diverse specifications, providing portfolio advantages when Nvidia, AMD, or Intel issue new chipsets.
Dissent Among Experts: The Lack of Innovation by Supermicro
The analyst community is not unified on the innovation depth in Supermicro. Mehdi Hosseini from Susquehanna is of the opinion that Supermicro lacks any identifiable innovation and simply assembles servers for other suppliers. “Super Micro doesn’t really do the innovation. They are a contract manufacturer with a willingness to commit working capital. Most of the innovation is done upstream,” Hosseni said.
Restoring Compliance: Overcoming Supermicro’s Self-Imposed Obstacles
Supermicro now seems to have addressed the issues related to their compliance with the Nasdaq filing requirements, which has been a problem in the past. The delay Supermicro experienced in filing its financial report followed the accusations of accounting fraud by a short seller. Fortunately, an audit after the fact found no proof of fraud or wrongdoing, and Supermicro was able to submit the necessary forms within the deadline in February.
Strained Supermicro: Revenue Surge But Shrinking GAAP Net Income
Supermicro seems to be undergoing a turbulent phase because they reported a mix of results for the second quarter of the 2025 fiscal year ending in December. On one hand, revenue grew immensely thanks to a 55% increase, which brought it to $5.6 billion. On the other hand, the gross profit margin also shrank by 350 basis points somehow to 11.8%. This suggests that Supermicro is indeed facing pricing pressure due to fierce competition in the AI server market. As a result of this, GAAP net income barely changed at $4 million or $0.51 per diluted share, which is disappointing considering the revenue growth.
Valuation and Forecast: Is there an opportunity for investors?
Supermicro’s earnings, according to Wall Street, will further grow at a compound rate of 20% per annum until fiscal 2026, which ends in June 2026. This projection of growth makes their current valuation of 13 times earnings seem rather too cheap. While one can argue that a lack of great innovation on Supermicro’s part makes sense, the truth is that the stock is fairly considered undervalued now, which means an opportunity exists for investors who are willing to wait. Analysts, however, warn that claiming returns in the 100-200% range within a year would be unrealistic.
Arista Networks: 85% Upside Potential
Another focus of attention in AI circles is Arista Networks. Needham’s analyst Ryan Koontz has maintained his valuation of Arista at a whopping $145 per share, suggesting an upside of 85% from their current share value of $78.
Arista’s Strength: AI Networking Solutions
Arista Networks specializes in developing networking solutions for cloud and enterprise data centers. Unlike legacy vendors, Arista’s switches and routers utilize a single operating system, which allows clients to streamline network deployment on a wide array of virtualization platforms (public clouds, private clouds, hybrid clouds), improving network ownership cost associated with deployment. Arista’s technology gives the company significant competitive differentiation.
Arista Continues to Dominate in High-Speed Switching
Arista has a commanding lead in the high-speed data center switching market, from 100 gigabits to 400 gigabits. The company has more than three times the market share compared to Cisco Systems, Inc., their closest competitor. Such dominance with data center network switching will enable Arista to take advantage of the rapidly growing demand for high-speed data center networks that are required in the new AI infrastructure.
Financial Performance: Strong and Beyond Expectations
The earnings for the fourth quarter were above analyst expectations, with revenue also beating estimates for earnings. Revenue rose by 25 percent to $1.9 billion, the second quarterly run rate in a row of year-over-year growth. Non-GAAP net income increased by 25 percent and was $0.65 per diluted share. Additionally, the company’s guidance suggests that the revenue growth rate for the year 2025 will be 17 percent.
Important Customers and Growth Potential
Arista has a number of other clients, including Microsoft, Meta Platforms, Apple, and Oracle. These clients are making significant amounts of capital spend on their AI infrastructures and it is expected to be very beneficial for Arista. Valuation and Outlook: A Bullish Perspective
According to Arista’s estimate, their earnings are expected to increase by 10% in 2025, which makes them appear overpriced at 34 times their earnings. Although, it does seem that some analysts disagree, as they seem to think this outlook is far too grim. Considering management’s statement predicting 17% revenue growth for 2025 coupled with Arista’s tendency to outperform analyst estimates (which is 14% on average over the past six quarters), the current valuation may not be as unreasonable in hindsight. Arista stock does seem to trade significantly below its recent peaks and for this reason, some analysts believe it could serve as a prime buying opportunity.
AI’s Impact on Investment Opportunities
The most recent analysis conducted on the Super Micro Computer alongside Arista Networks demonstrates the amount of value some investors could see in the AI vertical. Although both companies have their unique strengths and challenges, they stand to gain the most from the AI surge. Further analyses need to assess the entire value chain of each company’s growth prospects and AI vertical before reaching decisions.
