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SMCI Declines 18% in 6 Months: Should You Hold or Fold the Stock?
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Key Takeaways
SMCI shares fell 18.4% in six months, trailing the Computer-Storage Devices industry.
Margin pressure, rising receivables and inventory buildup weigh on SMCI's near-term outlook.
Competition from Pure Storage, Dell and HPE adds to SMCI's pricing and execution challenges.
Super Micro Computer (SMCI - Free Report) shares lost 18.4% in the past six months, underperforming the Zacks Computer- Storage Devices industry’s return of 77.5%. This decline in share price raises the question: Should investors buy in this dip, hold the stock tight or exit it right now
SMCI 6 Months Performance Chart
Image Source: Zacks Investment Research
SMCI Grapples With Operational Challenges Amid Expansion
Super Micro Computer faces several near-term headwinds despite strong AI-driven demand. The company is dealing with significant margin pressure, with gross margins expected to drop sharply due to the ramp of mega-scale GB300 Blackwell clusters.
Customer concentration and new deals with larger customers have also squeezed its margin as it needs to retain these customers. These mega deals have also resulted in higher receivables, resulting in negative free cash flow of $950 million for the first quarter of fiscal 2026.
Super Micro Computer’s working capital problem also stems from the massive operational scale-up required to meet unprecedented AI rack demand. SMCI plans to roll out 6,000 racks/month, including 3,000 liquid-cooled racks and expand new facilities in Taiwan, the Netherlands, Malaysia, and the Middle East.
SMCI’s rapid expansion is also causing inventory accumulation. SMCI’s first-quarter fiscal 2026 closing inventory was $5.7 billion, up from $4.7 billion in the previous quarter. This situation has spiked its cash conversion cycle from 96 days to 123 days.
SMCI Faces Competitive Pressure and Margin Compression
Rising competition from the leading companies in the storage and server space, such as Pure Storage (PSTG - Free Report) , Dell Technologies (DELL - Free Report) and Hewlett Packard Enterprise (HPE - Free Report) , is a concern for investors.
In the storage space, Pure Storage offers a range of modern storage solutions through its offerings like FlashArray, FlashBlade and Pure Cloud Block Store to serve the purpose of providing All-Flash performance, cloud integration, AI and simplified management.
In the AI-optimized server space, Dell Technologies is a strong competitor. Hewlett Packard Enterprise also offers a range of server services, including HPE ProLiant, HPE Synergy, HPE BladeSystem and HPE Moonshot servers. Growing price competition and price adjustments are a concern for the company as competition rises.
A combination of these factors has affected the company’s near-term margin outlook. SMCI projects a sequential decline of 300 basis points in its gross margin in the second quarter of fiscal 2026.
The Zacks Consensus Estimate for Super Micro Computer’s second-quarter fiscal 2026 earnings is pegged at 49 cents per share, suggesting a year-over-year decline of 19.7%. The estimates have been revised downward in the past 30 days.
Image Source: Zacks Investment Research
SMCI’s 200-Day and 50-Day SMA Suggest Bearish Trend
SMCI’s shares are trading below the 200-day and 50-day moving averages, indicating a bearish trend.
Image Source: Zacks Investment Research
Here’s Why SMCI Stock is Best to Avoid
Although SMCI’s long-term AI opportunity remains strong, its near-term challenges like margin pressure, heavy working-capital needs, and execution risks from rapid global expansion make it highly volatile in the near term.
SMCI currently has a Zacks Rank #5 (Strong Sell), which implies investors should avoid the stock for the time being.
Image: Bigstock
SMCI Declines 18% in 6 Months: Should You Hold or Fold the Stock?
Key Takeaways
Super Micro Computer (SMCI - Free Report) shares lost 18.4% in the past six months, underperforming the Zacks Computer- Storage Devices industry’s return of 77.5%. This decline in share price raises the question: Should investors buy in this dip, hold the stock tight or exit it right now
SMCI 6 Months Performance Chart
Image Source: Zacks Investment Research
SMCI Grapples With Operational Challenges Amid Expansion
Super Micro Computer faces several near-term headwinds despite strong AI-driven demand. The company is dealing with significant margin pressure, with gross margins expected to drop sharply due to the ramp of mega-scale GB300 Blackwell clusters.
Customer concentration and new deals with larger customers have also squeezed its margin as it needs to retain these customers. These mega deals have also resulted in higher receivables, resulting in negative free cash flow of $950 million for the first quarter of fiscal 2026.
Super Micro Computer’s working capital problem also stems from the massive operational scale-up required to meet unprecedented AI rack demand. SMCI plans to roll out 6,000 racks/month, including 3,000 liquid-cooled racks and expand new facilities in Taiwan, the Netherlands, Malaysia, and the Middle East.
SMCI’s rapid expansion is also causing inventory accumulation. SMCI’s first-quarter fiscal 2026 closing inventory was $5.7 billion, up from $4.7 billion in the previous quarter. This situation has spiked its cash conversion cycle from 96 days to 123 days.
SMCI Faces Competitive Pressure and Margin Compression
Rising competition from the leading companies in the storage and server space, such as Pure Storage (PSTG - Free Report) , Dell Technologies (DELL - Free Report) and Hewlett Packard Enterprise (HPE - Free Report) , is a concern for investors.
In the storage space, Pure Storage offers a range of modern storage solutions through its offerings like FlashArray, FlashBlade and Pure Cloud Block Store to serve the purpose of providing All-Flash performance, cloud integration, AI and simplified management.
In the AI-optimized server space, Dell Technologies is a strong competitor. Hewlett Packard Enterprise also offers a range of server services, including HPE ProLiant, HPE Synergy, HPE BladeSystem and HPE Moonshot servers. Growing price competition and price adjustments are a concern for the company as competition rises.
A combination of these factors has affected the company’s near-term margin outlook. SMCI projects a sequential decline of 300 basis points in its gross margin in the second quarter of fiscal 2026.
The Zacks Consensus Estimate for Super Micro Computer’s second-quarter fiscal 2026 earnings is pegged at 49 cents per share, suggesting a year-over-year decline of 19.7%. The estimates have been revised downward in the past 30 days.
Image Source: Zacks Investment Research
SMCI’s 200-Day and 50-Day SMA Suggest Bearish Trend
SMCI’s shares are trading below the 200-day and 50-day moving averages, indicating a bearish trend.
Image Source: Zacks Investment Research
Here’s Why SMCI Stock is Best to Avoid
Although SMCI’s long-term AI opportunity remains strong, its near-term challenges like margin pressure, heavy working-capital needs, and execution risks from rapid global expansion make it highly volatile in the near term.
SMCI currently has a Zacks Rank #5 (Strong Sell), which implies investors should avoid the stock for the time being.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.