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Though Super Micro Computer (NASDAQ: SMCI) has been one of the top stocks on the market in the past year -- soaring some 123% -- shares of the server and storage solutions specialist have also been prone to volatility. This is evident from the 37% decline in its stock price since the beginning of March, with the shares giving up a huge chunk of their gains they had clocked earlier.

Moreover, Supermicro's latest results for the fourth quarter of fiscal 2024 (ended on June 30) seem to have further dented investor confidence in the stock on account of a huge earnings miss . The company is experiencing growth pains as it looks to corner a bigger share of the rapidly growing market for artificial intelligence (AI) servers, but the numbers tell us it's indeed succeeding in its endeavor.

So, will Supermicro stock be able to win back investor confidence once again and deliver more upside in the coming year? Let's find out.

Latest guidance suggests more stock upside

Supermicro finished its latest fiscal year with revenue of $14.9 billion, a huge increase over its fiscal 2023 revenue of $7.1 billion. The company's non-GAAP net income also rose to $22.09 per share in the last fiscal year from $11.81 per share in the preceding year. This tremendous increase in Supermicro's top and bottom lines was driven by the booming demand for its AI servers.

On its latest earnings conference call, Supermicro management said, "Growth was driven by strong demand for next generation air-cooled and direct liquid-cooled (DLC) rack-scale AI GPU platforms, representing over 70% of revenues across enterprise and cloud service provider markets where demand remains strong."

The company could have ended the year with stronger growth, but a shortage of components for its DLC servers kept it from reporting higher revenue and earnings growth. More specifically, Supermicro says that shipments worth $800 million were shifted to July. However, a look at the bigger picture tells us that the outstanding growth Supermicro delivered in fiscal 2024 is set to continue in the new fiscal year as well.

The company has guided for $28 billion in revenue in the current fiscal year at the midpoint. The higher end of the guidance range stands at $30 billion, indicating that Supermicro has the potential to double its revenue once again this fiscal year. The company says that it finished the previous quarter with a record-high backlog. So, there is a good chance that it could indeed hit the higher end of its forecast range, especially considering that it is set to bring a new manufacturing facility in Malaysia online later in 2024.

Supermicro is also betting big on the growing demand for DLC servers, which it claims can help data center operators reduce energy costs by up to 40% while improving computing performance. Management anticipates that 25% to 30% of the new data centers that will be deployed globally in the next 12 months are likely to opt for DLC servers, "with most deployments coming from Supermicro."

As a result, Supermicro has decided to quickly add more DLC server rack capacity, which will impact its short-term profitability and margins. But the bigger picture here is that these short-term growing pains should ideally pave the way for long-term gains as the share of liquid-cooling in data centers versus air-cooling is forecast to jump to 33% in 2028 from 13% last year, according to consultancy Omdia.

Moreover, Supermicro's rapid growth suggests that it is cornering a bigger share of the AI server market. Bank of America estimates that Supermicro's share of the AI server market could expand from 10% last year to 17% in 2026. However, other analysts seem to be more bullish regarding its prospects. Thomas Blakey of KeyBanc Capital Markets believes that Supermicro's AI server market share could reach 23% this year.

It won't be surprising to see Supermicro's AI server market indeed turning out to be on the higher side. Market research firm TrendForce expects a 69% increase in sales of AI servers this year to $187 billion. The firm is forecasting stronger AI server demand to continue in 2025 as well, with Supermicro's customers such as Nvidia and Advanced Micro Devices launching new generations of data center chips, which could drive the need for more liquid-cooled server solutions.

How much upside can the stock deliver in the coming year?

The above discussion indicates that there is a strong chance of Supermicro's revenue in the new fiscal year, which has just begun, approaching the higher end of its guidance range. Assuming Supermicro indeed hits $30 billion in revenue in fiscal 2025 and trades in line with the 2.8 price-to-sales ratio of the S&P 500 index (of which it is a part), its market capitalization could increase to $84 billion in a year.

That would be a big jump from its current market cap of $33 billion. What's worth noting here is that Supermicro is currently trading at 2 times sales, which is lower than the S&P 500's average. Assuming the stock continues to trade at this multiple after a year and manages to generate $26 billion in annual revenue -- the lower end of its revenue guidance range -- its market cap could be worth $52 billion.

That would be a 57% increase in its market cap from current levels. So, investors looking to add a growth stock that's trading at an attractive valuation to their portfolios can consider buying Supermicro while it is beaten down and remains cheap. It could regain its momentum and deliver solid gains in the coming year.

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