Supermicro and Arista: Analysts See Strong Upside Potential

Market insights indicate Supermicro and AristaNetworks have substantial growth prospects. Despite recent stock splits, both companies show potential for significant price appreciation, making them appealing options for long-term investors.

Date: 30-03-2025

AI Rating: 7

Market Overview
The recent stock splits of Super Micro Computer (NASDAQ: SMCI) and Arista Networks (NYSE: ANET) have generated investor interest, particularly as both firms are projected to experience substantial upside in share prices over the next year. Notably, while historical trends show stocks typically outperforming the S&P 500 post-split, these two names have underperformed since the announcement of their splits.

Super Micro Computer Analysis
Super Micro reported a 55% increase in revenue to $5.6 billion for the second quarter of fiscal 2025. However, the gross profit margin contracted by 350 basis points to 11.8%, indicating pressure on profit margins due to increasing competition in the AI server market. Despite robust top-line growth, the flat GAAP net income of $0.51 per diluted share reflects stagnant profitability. Analysts project a 20% annual earnings growth through fiscal 2026, signaling potential long-term buy opportunities.

Arista Networks Analysis
Arista's fourth-quarter results showed a 25% increase in revenue to $1.9 billion and a corresponding 25% boost in non-GAAP net income to $0.65 per diluted share, outperforming expectations. With a strategic focus on cloud networks and significant market share in high-speed switching (over 3 times that of Cisco), Arista is poised to capture continued demand driven by AI. Wall Street anticipates a revenue growth of 17% in 2025, suggesting a sustained momentum for both income and earnings growth despite higher valuation metrics at 34 times earnings.

Conclusion
Both companies are positioned uniquely within their respective markets, with Super Micro benefitting from a strong AI server demand, albeit having challenges with profitability. Meanwhile, Arista stands to gain from a broader shift in network infrastructures driven by the rise in AI requirements. Investors might consider building positions, given the analysts' target price upside potential, despite the concerns around profitability and market competition.

Stocks: SMCI ANET