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By Danny Vena, Fool.com
The S&P 500, which tracks the stock market performance of the 500 largest U.S. companies, hit a new all-time high this week. This marks the 21st time this year the benchmark has ascended to new heights (as of this writing).
While some investors might find this concerning, XM Investment analyst Marios Hadjikyriacos remains bullish: “Stock markets are enjoying the best of all worlds, buoyed by a resilient U.S. economy and speculation that Fed rate cuts are just around the corner, helping to justify stretched valuations.” UBS analyst Mark Haefele concurs, positing in a note to investors, “All-time highs often generate investor concern that markets have peaked. Such worries are not supported by history.”
In fact, according to select Wall Street analysts, a number of high-profile stocks in the S&P 500 still have a great deal of upside potential and could soar as much as 91%.
Super Micro Computer: Implied upside of 91%
The first S&P 500 stock that could continue to soar is Super Micro Computer (SMCI), also known as Supermicro. The company partners with some of the top chipmakers to incorporate state-of-the-art processors into a suite of high-end servers specially designed to handle the computational rigors of artificial intelligence (AI).
Unlike some of its competitors, Supermicro uses a building-block architecture, which allows buyers to customize a system that's right for their needs. The company supplies a wide variety of server solutions focused on energy efficiency, helping defray the cost of AI processing.
In the company's fiscal 2024 third quarter (ended March 31), Supermicro's revenue surged 201% year over year to $3.85 billion, while its adjusted earnings per share (EPS) jumped 329% to $6.56. To keep up with soaring demand, Supermicro is building new production facilities and expanding existing ones, bringing its production capacity to $25 billion annually.
Wall Street remains remarkably bullish despite the stock rising an incredible 232% over the past year. Loop Capital analyst Ananda Baruah increased his price target on Supermicro to $1,500 while maintaining a buy rating on the shares. That represents a potential upside of 91% compared to Friday's closing price.
Baruah cited Supermicro's leading position in the AI server market and its ability to navigate complexity and scale as reasons for his growing confidence. He also believes that by the end of fiscal 2026, the company will increase its revenue run rate to $40 billion — a far cry from management's current forecast of roughly $15 billion for fiscal 2024.
The analyst isn't the only one bullish on Supermicro. Of the 16 analysts who offered an opinion on the stock in April, 12 rated the stock a buy or strong buy, and none recommended selling.
Furthermore, at just 2 times next year's sales, the stock is cheap compared to many AI stocks.
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The answer is a radical breakthrough that Wired says is “the rocket fuel of AI.”
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Microsoft: Implied upside of 45%
Another S&P 500 stock with plenty of upside is Microsoft (MSFT 0.03%), despite being the largest company in the world when measured by market cap. Microsoft is one of the big three cloud infrastructure platforms and a leading software-as-a-service (SaaS) provider. There is also the company's legacy business, which includes its Windows operating system and Office suite of productivity software.
Among Microsoft's biggest opportunities is generative AI, which the company has integrated across its product portfolio and offers to its cloud customers. The standard bearer for its efforts is Copilot, Microsoft's generative AI-powered suite of digital assistants.
Most prominent is Microsoft Copilot 365, but the company also has versions focused on developers, finance, sales, and more. The company charges $30 per user per month, and numerous analysts have chimed in, suggesting it could be worth as much as $100 billion in incremental revenue each year.
During the company's fiscal 2024 third quarter (ended March 31), Microsoft's revenue of $61.9 billion climbed 17% year over year, while EPS of $2.94 jumped 20%.
One Wall Street analyst believes there's much more to come. Truist analyst Joel Fishbein has a buy rating on Microsoft stock and a three-year price target of $600. This represents potential upside of 45% compared to Friday's closing price.
Fishbein cited generative AI, cloud computing, and Copilot as drivers, “which could propel shares to compounding strong gains,” resulting in tens of billions of dollars in additional revenue. The analyst is part of a growing Wall Street chorus singing Microsoft's praises. Of the 58 analysts who offered an opinion on the stock in April, 55 rated the stock a buy or strong buy, and none recommended selling.
At 35 times forward earnings, Microsoft might seem a bit pricey, but adoption of AI is still growing by leaps and bounds, providing a strong secular tailwind. That, combined with its long track record of performance, shows that it's deserving of a premium.
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