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This is majorly attributed to lower-than-expected fourth-quarter fiscal 2024 earnings per share (EPS) reported on Aug 6. There was a shortage of some new key components, which delayed shipments that could generate about $800 million in revenues. As a result, the company’s gross margin contracted 580 bps year over year. SMCI’s mounting expenses due to product innovation, marketing and administrative activities led to a contraction of 320 bps in its operating margin.
All these had a serious impact on the company’s EPS.
One-Month Price Performance
Image Source: Zacks Investment Research
Closing at $492.70 and slumping 20.1% on Aug 7, the SMCI stock is currently trading below its 50-day moving average, a technical indicator often seen as a bearish signal. This movement suggests a continuation of the downward trend, at least in the short term.
SMCI Trading Below 50-Day Moving Average
Image Source: Zacks Investment Research
Nevertheless, Super Micro Computer’s strong positioning in the artificial intelligence (AI) infrastructure market has been a major positive. It is continuously witnessing solid demand for its server and storage solutions, thanks to the growing proliferation of generative AI.
SMCI’s long-term prospects are likely to benefit from its significant investments in production, operations, management software, AI portfolio, cloud features and customer service, which are expected to bolster its customer base in the days ahead.
AI Prospects to Drive Long-Term Growth
Super Micro Computer is at the forefront of the current AI revolution. Its diversified AI portfolio and strong AI integrations into its storage systems are expected to continue bolstering its hold in the generative AI training and AI inferencing areas.
Given the fact that AI is accelerating the need for liquid cooling, Super Micro Computer is investing heavily in high-quality, optimized Direct Liquid Cooling (DLC) solutions for high-end applications.
The company is building and optimizing rack-scale plug and play (PnP) solutions with the latest DLC liquid cooling technology in order to help customers achieve the best time-to-deployment and time-to-online with their AI solutions.
The growing adoption of its next-generation air-cooled and DLC rack-scale AI GPU platforms, which represented 70% of revenues across enterprise and cloud service provider, is a major positive.
The company is also experiencing the solid adoption of its Rack-Scale PnP Total AI solutions, which is contributing well to its server and storage revenues. It expects 5,000 rack capacity per month by the end of this year.
Super Micro Computer’s strength in its Datacenter Building Block Solutions (DCBBS) is boosting its presence in the data center market. With the rapid deployment of large-scale AI infrastructure, datacenters worldwide are facing power shortages and cooling inefficiency challenges.
With DCBBS, the company addresses these issues by reducing datacenter build time from about 3 years to 2 years for new AI-specific centers. In the case of smaller facilities, DCBBS enables building an optimized, cost-effective datacenter in less than a year. The company plans to ramp up DCBBS production in November 2024.
Super Micro Computer has added three manufacturing facilities in Silicon Valley to support growth of AI and enterprise rack-scale liquid-cooled solutions, and capitalize on the rising demand for liquid-cooled data centers. It is also expanding manufacturing capabilities in Taiwan and Malaysia to meet the growing AI demand worldwide.
SMCI’s strong partnerships with bigwigs like NVIDIA (NVDA - Free Report) , Intel (INTC - Free Report) and Advanced Micro Devices (AMD - Free Report) for further advancements in AI infrastructure are noteworthy.
Many of Super Micro Computer’s servers are explicitly designed for high-performance NVIDIA GPUs for AI processing, such as the very high-density 4U-8GPU systems, the Intel CPU-based SYS-421GE-TNHR2-LCC, and the AMD CPU-based AS-4125GS-TNHR2-LCC.
The company is deepening its focus on developing the latest generative AI and inference-optimized systems based on the next-generation NVIDIA H200, B100, B200, GH200 and GB200 GPUs, as well as Intel’s Gaudi2/3, and Advanced Micro Devices’ MI300X/A GPUs.
Long-Term Projections at a Glance
Super Micro Computer’s technology and product leadership in the AI infrastructure market is expected to benefit its long-term prospects. It remains optimistic about its robust pipeline of new products, as well as existing products. The company’s accelerated innovation of DLC products, a large design win pipeline and a strong backlog position it for solid growth in fiscal 2025.
For fiscal 2025, the company expects net sales of $26-$30 billion, suggesting year-over-year growth between 74% and 101%. The Zacks Consensus Estimate for the same is pegged at $23.91 billion, indicating year-over-year growth of 60%.
The consensus mark for fiscal 2025 earnings is pegged at $33.56 per share, suggesting a year-over-year rise of 51.9%. The figure has moved south by 2.2% over the past seven days.
Image Source: Zacks Investment Research
Final Take
Near-term macroeconomic uncertainties and supply-chain challenges, especially in DLC-related components, are headwinds.
Super Micro Computer expects shipments to be constrained due to supply-chain bottlenecks for key new components for advanced platforms, which is a major negative.
The company is not seeing any significant boost in the shipment of Nvidia's Blackwell GPU until March 2025, which is a severe concern. This is the primary reason behind Super Micro Computer’s revenue projection for fiscal 2025. Previously, SMCI expected a larger number of Blackwell units to arrive before the end of the current calendar year.
The company expects gross and operating margins to gradually increase in the current fiscal year, driven by product and customer mix, and manufacturing efficiencies in new DLC AI GPU clusters, and platform introductions. However, the near-term margins are expected to be under pressure due to rising marketing spending, and growing investments in manufacturing facilities and research and development.
Also, increasing competition from original design manufacturers like Foxconn, Quanta Computer and Wiwynn, among others, poses a threat to SMCI’s market position.
Super Micro Computer is trading at a premium with a trailing 12-month P/B of 5.41X compared with the industry’s 5.07X, reflecting a stretched valuation. Hence, investors looking to buy the stock should wait for a better entry point.
Image Source: Zacks Investment Research
Given the combination of lofty valuations, intense competition and macroeconomic headwinds, selling the SMCI stock now appears to be a prudent move.
Currently, Super Micro Computer carries a Zacks Rank #4 (Sell). It has a Value Score and a Growth Score of D.
Image: Bigstock
Super Micro Computer (SMCI) Dips 45% in a Month: What Should You Do Now?
Super Micro Computer’s (SMCI - Free Report) shares have lost 45% in a month against the S&P 500, the Zacks Computer – Storage Devices industry and the Zacks Computer & Technology sector’s declines of 6.6%, 23.7% and 13%, respectively.
This is majorly attributed to lower-than-expected fourth-quarter fiscal 2024 earnings per share (EPS) reported on Aug 6. There was a shortage of some new key components, which delayed shipments that could generate about $800 million in revenues. As a result, the company’s gross margin contracted 580 bps year over year. SMCI’s mounting expenses due to product innovation, marketing and administrative activities led to a contraction of 320 bps in its operating margin.
All these had a serious impact on the company’s EPS.
One-Month Price Performance
Image Source: Zacks Investment Research
Closing at $492.70 and slumping 20.1% on Aug 7, the SMCI stock is currently trading below its 50-day moving average, a technical indicator often seen as a bearish signal. This movement suggests a continuation of the downward trend, at least in the short term.
SMCI Trading Below 50-Day Moving Average
Image Source: Zacks Investment Research
Nevertheless, Super Micro Computer’s strong positioning in the artificial intelligence (AI) infrastructure market has been a major positive. It is continuously witnessing solid demand for its server and storage solutions, thanks to the growing proliferation of generative AI.
SMCI’s long-term prospects are likely to benefit from its significant investments in production, operations, management software, AI portfolio, cloud features and customer service, which are expected to bolster its customer base in the days ahead.
AI Prospects to Drive Long-Term Growth
Super Micro Computer is at the forefront of the current AI revolution. Its diversified AI portfolio and strong AI integrations into its storage systems are expected to continue bolstering its hold in the generative AI training and AI inferencing areas.
Given the fact that AI is accelerating the need for liquid cooling, Super Micro Computer is investing heavily in high-quality, optimized Direct Liquid Cooling (DLC) solutions for high-end applications.
The company is building and optimizing rack-scale plug and play (PnP) solutions with the latest DLC liquid cooling technology in order to help customers achieve the best time-to-deployment and time-to-online with their AI solutions.
The growing adoption of its next-generation air-cooled and DLC rack-scale AI GPU platforms, which represented 70% of revenues across enterprise and cloud service provider, is a major positive.
The company is also experiencing the solid adoption of its Rack-Scale PnP Total AI solutions, which is contributing well to its server and storage revenues. It expects 5,000 rack capacity per month by the end of this year.
Super Micro Computer’s strength in its Datacenter Building Block Solutions (DCBBS) is boosting its presence in the data center market. With the rapid deployment of large-scale AI infrastructure, datacenters worldwide are facing power shortages and cooling inefficiency challenges.
With DCBBS, the company addresses these issues by reducing datacenter build time from about 3 years to 2 years for new AI-specific centers. In the case of smaller facilities, DCBBS enables building an optimized, cost-effective datacenter in less than a year. The company plans to ramp up DCBBS production in November 2024.
Super Micro Computer has added three manufacturing facilities in Silicon Valley to support growth of AI and enterprise rack-scale liquid-cooled solutions, and capitalize on the rising demand for liquid-cooled data centers. It is also expanding manufacturing capabilities in Taiwan and Malaysia to meet the growing AI demand worldwide.
SMCI’s strong partnerships with bigwigs like NVIDIA (NVDA - Free Report) , Intel (INTC - Free Report) and Advanced Micro Devices (AMD - Free Report) for further advancements in AI infrastructure are noteworthy.
Many of Super Micro Computer’s servers are explicitly designed for high-performance NVIDIA GPUs for AI processing, such as the very high-density 4U-8GPU systems, the Intel CPU-based SYS-421GE-TNHR2-LCC, and the AMD CPU-based AS-4125GS-TNHR2-LCC.
The company is deepening its focus on developing the latest generative AI and inference-optimized systems based on the next-generation NVIDIA H200, B100, B200, GH200 and GB200 GPUs, as well as Intel’s Gaudi2/3, and Advanced Micro Devices’ MI300X/A GPUs.
Long-Term Projections at a Glance
Super Micro Computer’s technology and product leadership in the AI infrastructure market is expected to benefit its long-term prospects. It remains optimistic about its robust pipeline of new products, as well as existing products. The company’s accelerated innovation of DLC products, a large design win pipeline and a strong backlog position it for solid growth in fiscal 2025.
For fiscal 2025, the company expects net sales of $26-$30 billion, suggesting year-over-year growth between 74% and 101%. The Zacks Consensus Estimate for the same is pegged at $23.91 billion, indicating year-over-year growth of 60%.
The consensus mark for fiscal 2025 earnings is pegged at $33.56 per share, suggesting a year-over-year rise of 51.9%. The figure has moved south by 2.2% over the past seven days.
Image Source: Zacks Investment Research
Final Take
Near-term macroeconomic uncertainties and supply-chain challenges, especially in DLC-related components, are headwinds.
Super Micro Computer expects shipments to be constrained due to supply-chain bottlenecks for key new components for advanced platforms, which is a major negative.
The company is not seeing any significant boost in the shipment of Nvidia's Blackwell GPU until March 2025, which is a severe concern. This is the primary reason behind Super Micro Computer’s revenue projection for fiscal 2025. Previously, SMCI expected a larger number of Blackwell units to arrive before the end of the current calendar year.
The company expects gross and operating margins to gradually increase in the current fiscal year, driven by product and customer mix, and manufacturing efficiencies in new DLC AI GPU clusters, and platform introductions. However, the near-term margins are expected to be under pressure due to rising marketing spending, and growing investments in manufacturing facilities and research and development.
Also, increasing competition from original design manufacturers like Foxconn, Quanta Computer and Wiwynn, among others, poses a threat to SMCI’s market position.
Super Micro Computer is trading at a premium with a trailing 12-month P/B of 5.41X compared with the industry’s 5.07X, reflecting a stretched valuation. Hence, investors looking to buy the stock should wait for a better entry point.
Image Source: Zacks Investment Research
Given the combination of lofty valuations, intense competition and macroeconomic headwinds, selling the SMCI stock now appears to be a prudent move.
Currently, Super Micro Computer carries a Zacks Rank #4 (Sell). It has a Value Score and a Growth Score of D.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.