Super Micro Shows Margin Weakness Despite Strong AI Demand: Analyst

Super Micro Computer, Inc SMCI shows margin weakness despite strong artificial intelligence demand.

The company’s stock plummeted in pre-market trading and continues to dip, currently trading at $496.83 per share, down 19.47% at last check Wednesday.

• Bank of America Securities analyst Ruplu Bhattacharya downgraded the rating on Super Micro Computer from Buy to Neutral with a price target of $700, down from $1,090.
• Goldman Sachs analyst Michael Ng reiterated a Neutral rating on Super Micro with a price target of $675, down from $775.
• KeyBanc analyst Thomas Blakey reiterated a Hold rating on Super Micro.
• JPMorgan analyst Samik Chatterjee maintained an Overweight rating with a price target of $950.

Check out other analyst stock ratings.

BofA Securities: Fourth-quarter revenues were in line with Bhattacharya and Street estimates despite $800 million of pushout into the first quarter due to the non-availability of components related to liquid cooling.

The analyst said the revenue guide for the first quarter is higher, and the revenue guide for fiscal 2025 is meaningfully higher ($28 billion at the mid-point, versus Bhattacharya and Street estimates at $25.1 billion and $23.8 billion), which indicates that AI-related demand remains strong.

However, the fourth-quarter gross margin was much lower than expected (11.3% versus Bhattacharya’s 13.6%), given customer mix and ramp costs related to liquid cooling.

Bhattacharya flagged that despite overall higher revenue in fiscal 2025, gross margins will only gradually return to the normal range (14%-17%) by the end of fiscal 2025.

The next several quarters remain margin-challenged. Super Micro will navigate a competitive pricing environment.

Bhattacharya projected fiscal 2025 revenue and EPS of $28.49 billion and $31.75. He expects fiscal 2025 revenue and EPS of $33.63 billion and $41.38.

Goldman Sachs: Weaker-than-expected gross margins of 11.3% were impacted by Super Micro’s focus on strategic new design wins with competitive pricing to win market share, customer mix, higher initial costs, and expedited fees on Direct Liquid Cooling (DLC) components, Ng noted.

The gross margin weakness likely will lead to investor concerns around Super Micro’s ability to return to its target gross margin range of 14%-17%.

That said, Super Micro has demonstrated leadership in DLC with a reported ~70%-80% market share of industry liquid cooling solutions in June and July and expectations to ramp DLC rack production capacity beyond current levels of ~1,500 per month.

Ng projected fiscal 2025 revenue and EPS of $27.88 billion and $35.97. He expects fiscal 2025 revenue and EPS of $31.94 billion and $45.12.

KeyBanc: The stock traded in the after-hours at ~20x Blakey’s increased calendar year 2024 EPS, a premium to the low double-digit gross margin cohort of mid-teens. The analyst noted that this premium encompasses the company’s dynamic growth and dominant industry position in building AI infrastructure. According to management, supply constraints drove 200+ bps of pressure in the fourth quarter, which should be improved in coming quarters, but another 200+ bps was driven by pricing pressure and mix at a large customer. Fourth-quarter gross margin reached a multi-year low, with only marginal improvement expected in the first quarter. Still, as per Blakey, a reiteration of the company’s 14%-17% long-term gross margin goal implies a substantial ramp in gross margin in the second half.

Blakey projected fiscal 2025 revenue and EPS of $29.32 billion and $43.89. He expects fiscal 2025 revenue and EPS of $34.49 billion and $54.04.

JPMorgan: Super Micro expects to cycle past peak inefficiencies in manufacturing and give a strategic discount for customer acquisition to a large customer building out the largest AI cluster.

The gross margins are to improve sequentially from the fourth quarter onwards. They are expected to return to the long-term range of 14%-17% during fiscal 2025, led by improving manufacturing efficiencies and demand from a broader group of CSPs with lower buying power, implying lower volume discounts and better cost footprint with a ramp in Malaysia manufacturing facility.

Chatterjee expects limited impact from the delays to Nvidia Corp’s NVDA Blackwell GPU solutions, as the company remains conservative in its plans around the availability of next-generation solutions while supporting customers in achieving lower TCO through liquid-cooled racks for current-generation compute solutions.

Chatterjee projected fiscal 2025 revenue and EPS of $27.98 billion and $34.03. He expects fiscal 2025 revenue and EPS of $33.64 billion and $45.03.

Price Action: SMCI shares traded lower by 17.0% at $511.68 at last check Wednesday.

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