This popular AI stock is up 202% and still has upside, according to one Wall Street analyst.

super micro computer (SMCI 10.24%) The stock has surged 202% year to date, with similar gains expected in 2023. barclays Analyst George Wang recently maintained a Buy rating on the stock and raised his price target to $961. The new target represents a 21% upside from the stock’s closing price on February 13th.

The problem is that Supermicro (as it is more commonly known) stock can burn out quickly, hitting analysts’ targets within a matter of days. Optimism about the IT rack solutions provider’s accelerating growth pushed the stock up about 8% following the analyst’s updated call.

The most important question is whether long-term investors can reasonably expect the stock to deliver returns at such high prices.

Spending on data center infrastructure is exploding.

Supermicro is selling more rack systems to data centers as its supply of artificial intelligence (AI) chips improves, which helped its sales more than double last quarter.

Supermicro’s adjusted earnings are expected to increase 84% to $21.83 for the fiscal year ended June, according to consensus analyst estimates. Although the stock looks expensive on a trailing earnings basis, a valuation using future earnings estimates suggests there is more room for upside.

A leading data center provider worth owning for the long term

Based on this year’s earnings estimates, the stock’s forward price-to-earnings (P/E) ratio is 39. Using next year’s forecast, the future P/E drops to 30. This makes much more sense than for a company to grow at such a high rate.

Considering the long-term tailwinds impacting data center and AI spending, Supermicro’s valuation could justify the stock reaching its $961 price target in the near term, with the potential to achieve higher levels in the coming years.