Super Micro Computer has soared 938% over the past year. Bank of America says it can go even higher thanks to AI.

• Super Micro Computer is one of the best-performing AI stocks right now, and Bank of America thinks it can keep surging.
• The tech company has seen its stock soar 938% over the past year on strong demand for its AI-server products.
• Here's why Bank of America initiated Super Micro Computer with a "Buy" rating and a $1,040 price target.

Super Micro Computer stock has soared 938% over the past year, and Bank of America believes the rally can continue.

The bank initiated Super Micro Computer with a "Buy" rating and set a $1,040 price target on Wednesday, suggesting potential upside of about 10% from current levels. Shares of Super Micro jumped as much as 11% in response to the report.

Super Micro Computer sells AI-enabled servers and has seen its business explode over the past year, with more than 50% of its revenue tied to accelerators like GPUs, according to the bank.

"We expect the market for AI servers to grow, on average, 50% CAGR over the next three years, vs. historical growth of the overall server market (5.5% CAGR over the past 17 years), and we expect Super Micro's revenue to grow even faster driving market share gain," Bank of America analyst Ruplu Bhattacharya said.

Super Micro Computer's favorable market position comes from its establishment as an early launch partner for Nvidia, AMD, and Intel for CPUs and GPU accelerators, according to the note.

One of the company's biggest advantages is building server technology from the ground up and in a highly customized way.

"Super Micro's forte is building server technology from the ground up, and designing its own chassis, motherboard and other components. This allows it to develop the highest performing customized solution for clients. That's a key competitive advantage in our view, as is its ability to quickly incorporate new designs and reduce time-to-market," Bhattacharya explained.

The company's ability to quickly incorporate new designs and technologies into its AI-enabled servers should propel its revenue and profit growth over the next few years, with Bank of America's estimates well ahead of consensus estimates.

For example, Bank of America expects Super Micro Computer to generate $35.66 in earnings per share in 2025, about 26% above Wall Street estimates of $28.24.

These high earnings growth estimates mean that as long as Super Micro Computer delivers, its stock isn't outlandishly overvalued, even when considering its sky-high rally. The company's market valuation has soared from $5 billion last year to $54 billion today.

"Most of this re-rating relates to Super Micro beating Street expectations and raising guidance during F2Q24; as well as investors' current preference for AI-related names," Bhattacharya said.

On a forward twelve-month price-to-earnings basis, Super Micro Computer trades at about 34x, which is in line with Nvidia's current valuation and only slightly above Microsoft's 30x and Amazon's 31x forward price-to-earnings multiples.