Why JPMorgan thinks an AI stock up 764% in a year has 18% more upside.

According to JPMorgan, the rapid increase in the price of Super Micro Computer stock that has occurred over the course of the past year is not likely to slow down any time soon.

Monday was the day that the financial institution began trading Super Micro Computer stock with a "Overweight" rating and a price objective of $1,150. This represents a possible increase of 18% from the previous day's ending price. In response to the favorable initiation report that JPMorgan released on Monday, the stock price increased by around 6%.

Super Micro is the leading company in the AI compute market, which is burgeoning with demand stemming from training AI models, Retrieval-Augmented Generation by Tier 2 CSPs and Enterprises, and eventually AI inferencing workloads," the financial institution added.

Since the beginning of the year, Super Micro Computer's stock has increased by 764% due to the success of its artificial intelligence server business. As a result of the significant increase in the stock price of the company, the San Jose-based company has been elevated from the small-cap Russell 2000 index to the large-cap S&P 500 index, which has resulted in the company's market capitalization reaching approximately $60 billion.

Considering that Super Micro Computer is now disrupting the traditional server industry with its AI-capable server stacks, JPMorgan anticipates that the company will continue to maintain its recent supremacy.

"We expect the leadership to continue, led by a balance of custom built solutions and fast time to market, although potential upside is more likely from rapid expansion in the AI Server market rather than expansion of the already premium valuation multiple," the financial institution said.

The AI company is currently trading at a forward price-to-earnings ratio of approximately 34x, which is significantly higher than the forward price-to-earnings multiple of approximately 20x that is used for the S&P 500. However, the extraordinary growth of Super Micro Computer looks to justify the premium valuation multiple that was applied to the company. JPMorgan forecasts that the company would have a revenue compounded annual growth rate of 43 percent through the year 2027.

The 2027 revenue forecast implies that Super Micro will have 10%-15% share of the AI Server market, which we view as conservative given its early lead," the financial institution stated. "We believe investors should own the AI Server theme given the rapid expansion of the overall market and potential upside to earnings."

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