Super Micro Computer Stock Gained 36% on Friday, But This Analyst Sees Huge Downside - Here's Why

Super Micro Computer, Inc SMCI stock continued its rally Monday since it raised its earnings guidance last week.

Last Thursday, the company estimated that second-quarter net sales would be between $3.6 billion and $3.65 billion, versus the prior guidance of between $2.7 billion and $2.9 billion.

The adjusted diluted net income per common share will likely be between $5.40 and $5.55, versus the previous forecast of $4.40 to $4.88.

However, Wedbush analyst Matt Bryson said the company provided minimal color on the release, only signaling strong market demand for its products as driving the top-line upside.

The analyst reiterated a Neutral rating on Super Micro Computer with a price target of $250.

SMCI’s valuation, as per the analyst, implied a PE of ~13X applied to FY25 estimates (after netting out SMCI’s debt/cash). While this multiple is above SMCI’s historical valuation range (which averaged ~10X over the past five years), it is consistent with the high end of the range the analyst applied to more commoditized hardware offerings (memory, HDDs, servers, etc.). 

He noted that earnings imply just flattish operating margins, indicating some gross margin deterioration as operating expenditure (beyond sales commissions) typically would not scale immediately with higher revenues.

The analyst noted the standalone result as positive for SMCI, but the magnitude of good news will depend on the details. Specifically,

Bryson chose to wait for SMCI’s report and earnings call for additional color before revisiting his forward assumptions and the implications for his company outlook. AI-oriented deals drove SMCI strength. 

While SMCI sales are primarily dependent on Nvidia Corp NVDA GPU allocation (with demand outpacing supply) and, as such, should not correlate directly with NVDA results, the analyst noted the uptick in revenue as a bullish signal for NVDA growth through the calendar fourth quarter.

The analyst also flagged Meta Platforms Inc’s META substantial investment in AI (including 350k H100s by the end of this year — and overall almost 600k H100s equivalents of compute). Meta has previously been a significant customer of SMCI.

The analyst projected a Q2 revenue and EPS of $2.80 billion (vs. consensus of $3.06 billion) and $4.65 (vs. consensus of $4.77) for SMCI.

Super Micro Computer stock gained over 22% last week and over 46% last month. The stock gained over 474% last year.

Price Action: SMCI shares traded higher by 4.61% at $442.88 on the last check Monday.

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