Super Micro Computer (SMCI 3.43%), also known as Supermicro, was one of the market's hottest artificial intelligence (AI) stocks. The AI server maker's stock closed at a record high of $118.81 on March 13, 2024, marking a gain of 1,020% over the previous 12 months.
Today, its stock trades at about $34. It lost more than 70% of its value as it grappled with a declining gross margin, accounting issues, a delayed annual report, delisting threats, and subpoenas from the Department of Justice (DOJ) and Securities and Exchange Commission (SEC). But as it overcomes most of these issues, will it recover over the next 12 months?
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What happened to Supermicro over the past year?
Supermicro controls a much smaller slice of the traditional server market than Dell Technologies (DELL 0.13%) and Hewlett Packard Enterprise (HPE +1.25%). However, it carved out a niche by building powerful, liquid-cooled servers for AI tasks. Its partnership with Nvidia (NVDA 1.84%) also granted it access to a steady supply of the chipmaker's powerful data center GPUs for processing machine learning and AI tasks.
Supermicro's early-mover's advantage in the dedicated AI server market gave it sharp edge against its larger competitors as the AI market expanded. Its revenue surged 46% in fiscal 2022 (which ended in June 2022), 37% in 2023, and 110% in 2024. Those explosive growth rates drew a stampede of bulls to its stock.
NASDAQ: SMCI
Key Data Points
But last August, the prolific short-seller Hindenburg Research (which closed down this January) accused Supermicro of inflating its revenue with partial orders. Supermicro denied those allegations, but it subsequently postponed its 10-K filing for fiscal 2024 because it needed to assess its "internal controls over financial reporting."
In October, its auditor Ernst & Young resigned and said it was "unwilling to be associated" with its financial statements. That setback led to further delays for its 10-K filing, which caused Nasdaq to issue a non-compliance letter as a warning of a potential delisting in November. Around the same time, the SEC and DOJ subpoenaed Supermicro's financial documents. All of those problems caused Supermicro's stock to sink to a one-and-a-half-year low of $18.01 on Nov. 14.
What will happen to Supermicro over the next 12 months?
However, most of those headwinds have already dissipated. Supermicro hired a new auditor last November, filed its overdue 10-K this February, and dodged a delisting. That progress could convince the SEC and DOJ to back off from launching full probes or lawsuits. Meanwhile, Supermicro's sales continued to soar over the past year.
|
Metric |
Q2 2024 |
Q3 2024 |
Q4 2024 |
Q1 2025 |
Q2 2025 |
|---|---|---|---|---|---|
|
Revenue growth (YOY) |
103% |
201% |
144% |
180% |
55% |
|
Gross margin |
15.4% |
15.5% |
11.2% |
13.1% |
11.8% |
Data source: Supermicro. YOY = Year over year.
For fiscal 2025, Supermicro expects its revenue to rise 74% to 101% to between $26 billion and $30 billion as the AI boom continues. That's well above analysts' expectations for 60% growth.
However, Supermicro's gross margin dropped from 18% in fiscal 2023 to 14.1% in fiscal 2024, and declined another 350 basis points year over year to 12.4% in the first half of fiscal 2025. That pressure suggested that Supermicro's pricing power might be limited by tougher competition from Dell, HPE, and other larger server makers in the AI market.
But despite that pressure, analysts expect its earnings per share (EPS) to rise 13% in fiscal 2025. For fiscal 2026, they expect its revenue and EPS to grow 40% and 52%, respectively. Those are stunning growth rates for a stock that trades at 15 times this year's earnings.
Where will Supermicro's stock be in a year?
If Supermicro matches analysts' expectations, avoids any more accounting issues, and still trades at 15 times its forward earnings, its stock price could rise more than 60% to $55 by the beginning of fiscal 2027 (which starts in July 2026).
That would likely easily beat the broader market's return, but it could take a while for Supermicro to win over investors again after all of its problems over the past year. Investors should also keep a close eye on its larger competitors like Dell and HPE, which have also significantly expanded their lineup of high-performance AI servers to challenge Supermicro.
