Super Micro Computer (SMCI +0.89%), more commonly known as Supermicro, went on a wild ride over the past year. The maker of artificial intelligence (AI) servers closed at a record split-adjusted high of $118.81 on March 13, 2024, which marked a 1,020% gain over the previous 12 months.
At the time, investors were impressed by its brisk sales of liquid-cooled AI servers, which ran on Nvidia's high-end data center graphics processing units (GPUs). But today, Supermicro trades at about $47.
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Supermicro lost its luster as it struggled with a delayed 10-K filing due to accounting issues, the departure of its auditor, delisting threats, and regulatory probes. Its slowing growth and declining gross margins also indicated it was losing its pricing power against its larger competitors.
The company finally hired a new auditor, filed its overdue 10-K this February, dodged a delisting, and seemed to placate the regulators. But its growth is still cooling off as the macro and competitive headwinds intensify across the evolving AI market. So should investors still buy its stock today?
What happened to Supermicro over the past year?
Supermicro is still an underdog in traditional servers compared to market leaders like Hewlett Packard Enterprise and Dell Technologies. But it carved out a niche with its dedicated AI servers, and Raymond James estimates it now controls about 9% of that growing market. Its close relationship with Nvidia also gave it access to a steady supply of top-tier data center GPUs.
Supermicro's revenue surged 46% in its fiscal 2022 (which ended in June 2022), 37% in fiscal 2023, and 110% in fiscal 2024. Its gross margin expanded from 15.4% in fiscal 2022 to 18% in fiscal 2023 as the AI market heated up.
But its gross margin declined to 14.1% in fiscal 2024 as it faced tougher competition and relied on aggressive pricing strategies to sell more servers. Over the past year, its revenue growth continued to cool off as its gross margins shrank.
|
Metric |
Q3 2024 |
Q4 2024 |
Q1 2025 |
Q2 2025 |
Q3 2025 |
|---|---|---|---|---|---|
|
Revenue growth (YOY) |
201% |
144% |
180% |
55% |
19% |
|
Gross margin |
15.5% |
11.2% |
13.1% |
11.8% |
9.6% |
Data source: Supermicro. YOY = year-over-year.
Many of its customers postponed their new AI server purchases in anticipation of Nvidia's next-gen Blackwell chips, while supply chain constraints made it harder to fulfill its existing orders. The macro headwinds exacerbated that pressure by forcing many companies to rein in their spending on pricey AI servers. As a result, its inventory levels rose, its pricing power waned, and its gross margins contracted.
What will happen to Supermicro over the next year?
For the fourth quarter of fiscal 2025, Supermicro expects its revenue to grow at a midpoint of 13% year over year as it ramps up its production of Blackwell-powered servers and data center building block solutions -- which bundle its AI servers and software for quick deployments.
NASDAQ: SMCI
Key Data Points
For the full year, it expects its revenue to rise 46% to 51%. That outlook is still impressive, but it was scaled back from its prior outlook for 57% to 67% growth.
Analysts expect its revenue to rise 48% in fiscal 2025, 36% in fiscal 2026, and 25% in fiscal 2027. We should take those estimates with a grain of salt, but investors shouldn't expect it to grow as rapidly as it did over the past three years.
That slowdown wouldn't be surprising, since Hewlett Packard Enterprise, Dell, and other major server makers have been rolling out more dedicated AI servers for the booming market. Supermicro established an early mover's advantage in the space, but it doesn't have much of a moat against those rivals.
So is it the right time to buy Supermicro's stock?
Supermicro still faces a lot of macro and competitive challenges, but it also looks like a bargain at 18 times next year's earnings. The AI server market could still have a compound annual growth rate of 34.3% from 2024 to 2030, according to MarketsandMarkets Research, so there could be plenty of room for Supermicro, Hewlett Packard Enterprise, and Dell to grow without trampling one another.
If you believe Supermicro can defend its niche with its high-end liquid-cooled servers, its stock might be worth accumulating as it trades far below its all-time highs. But investors should watch its gross margins closely to see if it can maintain its pricing power in this tough market.
