We're a quarter through 2025, and the generative artificial intelligence (AI) hype cycle may feel long in the tooth, but it is far from over. Companies continue to pour billions into the industry to avoid falling behind in a technology that could transform the global economy.
This scramble for AI dominance lets hardware providers like Super Micro Computer (SMCI +3.25%) leverage a picks-and-shovels business model to provide the data-center equipment other companies need to build and deploy consumer-facing large language models (LLMs).
But while business is booming, Supermicro's shares still trade at a dramatic discount to the all-time highs reached in 2024. Let's explore what the next 12 months might have in store for the company.
The shares have crashed
At the time of writing, Supermicro shares have fallen more than 70% from their all-time high of $118.82, reached in March 2024. Much of the decline can be credited to a report from short-seller organization Hindenburg Research, which accused the company of accounting irregularities, self-dealing, and sanctions evasion in a scathing report published in August.
NASDAQ: SMCI
Key Data Points
After that, Supermicro experienced a whirlwind of bad news. The company delayed filing its 2024 annual report while its auditor, Ernst & Young, resigned, citing an unwillingness to be associated with its financial statements. This put the shares at risk of being delisted from the Nasdaq exchange, which could have hurt their liquidity and appeal to investors.
However, things have begun getting better. In November, Supermicro appointed BDO USA as its new auditor and submitted a plan to regain compliance with the Nasdaq's listing rules. Most importantly, an internal review in December found no evidence of managerial misconduct. By February, the company submitted its delayed filings, putting it in compliance and allowing investors to finally focus on the business fundamentals.
Business is booming
Most of Supermicro's regulatory challenges seem as if they've been resolved. However, they have distracted investors from the company's strong business momentum, which is belied by the huge stock price declines. The company's preliminary second-quarter earnings put this into perspective.
Management forecast sales of $5.6 billion to $5.7 billion, which would represent a solid 54% year-over-year increase. This growth is powered by robust demand for its computer servers, which turn the graphics processing units (GPUs) made by partners like Nvidia and Advanced Micro Devices into ready-to-use computer servers for data-center clients. The company specializes in energy-efficient designs, which are ideal for companies trying to handle energy-intensive AI workloads.
Image source: Getty Images.
During the next 12 months, investors should expect Supermicro to benefit from the rollout of Nvidia's new Blackwell-based AI chips, which offer dramatic performance improvements compared to their predecessors. That said, while Supermicro benefits from Nvidia's innovation, it has significantly less pricing power, which has led to a gross margin of around 12% compared to Nvidia's gross margin of 75%.
What will tariffs mean for Supermicro?
Like many technology companies, Supermicro has been hit hard by the announcement of Trump's "Liberation Day" tariffs, announced on April 2. The good news is that the levies on Taiwan aren't expected to apply to semiconductor chips, which are a significant part of Supermicro's supply chain because it uses them to make computer servers.
Like most multinational companies, Supermicro has an extensive supply chain that will almost certainly be hit by at least some of Trump's new tariffs. The silver lining is that its foreign rivals will likely be hit harder.
In February, the San Jose, California-based company announced plans to expand its U.S. manufacturing capacity with a new 300,000-square-foot facility, expected to reach nearly 3 million square feet when complete. This move could help it stay ahead of potential trade uncertainty and onshoring policies that may last long after the Trump administration.
Even though Supermicro looks poised to outperform the market, this remains an incredibly uncertain time for stocks. And investors may want to wait for the dust to settle before taking any positions in Supermicro.
