Super Micro Computer (SMCI -4.34%) shares plunged following the release of its fiscal 2025 fourth-quarter results, reinforcing its status as one of the more volatile stocks in the market. The stock now trades down around 25% over the past year, but it is still up nearly 50% year to date, as of this writing.
The developer of end-to-end computing solutions for data centers, cloud computing, enterprise IT, big data, and high-performance computing has been on a roller coaster ride over the past year, as it has consistently lowered its revenue guidance throughout its fiscal year. This started last November, when it slashed its fiscal first-quarter revenue guidance to a range of $5.9 billion to $6 billion from an earlier forecast of between $6 billion and $7 billion. It followed that up in February, when it announced that its fiscal Q2 revenue would fall short of expectations. In May, its fiscal Q3 revenue came up short of its earlier guidance, and it forecast fiscal Q4 revenue well below analyst expectations.
Perhaps, then, it should be no surprise that when the company reported its fiscal Q4 results, it once again missed analyst expectations.
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Revenue forecasting and gross margins problems persist
For the quarter, Supermicro's revenue rose 7% year over year to $5.76 billion, which missed the $5.89 billion analyst consensus, as compiled by LSEG. It was also toward the low end of its earlier guidance range for sales to be between $5.6 billion and $6.4 billion.
In addition to its issues with forecasting revenue, Supermicro has also seen gross margin pressure. This started in its June 2024 quarter, when its gross margin plunged to 11.3% from 17% a year earlier. At the time, the company said that this was because it lowered prices in order to secure new design wins.
However, its gross margins have not recovered, with the blame being shifted to the graphics processing unit (GPU) platform transition (Nvidia's move from Hopper to Blackwell), with more price competition surrounding older platforms. In fiscal Q4, its gross margins sank even further, coming in a 9.5%, versus 10.2% a year ago and 9.6% in fiscal Q3.
Lower gross margins are a problem, as they make it more difficult to turn revenue into profits. The company is looking to gradually improve its gross margins through offering complete data center solutions and an increased focus on higher-margin markets, such as enterprise, IoT, and telecom. Its long-term goal is to still get back to around 15% to 16%, but it said that fiscal Q1 gross margins would be similar to Q4.
Its weak gross margins, meanwhile, are hurting its profits. Adjusted EPS plunged 24% to $0.41, which fell short of the $0.44 analyst consensus. And while the company's fiscal Q1 revenue guidance of between $6 billion and $7 billion bracketed the $6.6 billion consensus, its adjusted EPS guidance of $0.40 to $0.52 was well below analyst estimates of $0.59.
For the full year fiscal 2026, however, the company projected strong revenue growth. It forecast revenue to rise to at least $33 billion, which would represent growth of 50%. Given its Q1 outlook, though, this would be more back-end loaded. The company expects the growth to be driven by expanding its enterprise customer base, upcoming product innovations, and its new Data Center Building Block Solutions (DCBBS), a modular architecture that helps customers get new data centers up and running quickly.
Is it time to buy the dip?
While Supermicro's robust full-year revenue guidance is positive, it's also difficult to put a lot of credence into it, given that the company consistently lowered its forecast and missed expectations this past fiscal year. Meanwhile, its gross margin issues have not gone away. It continues to be a low-margin, low-moat business that may have difficulty navigating GPU product transition cycles.
From a valuation standpoint, the stock now trades at a forward price-to-earnings ratio (P/E) of just over 16 times based on fiscal-year 2026 analyst estimates. That appears reasonable on the surface, especially given its revenue growth guidance. However, this is a much different business than other artificial intelligence (AI) infrastructure plays like chipmakers, which tend to have wider moats and robust gross margins.
If Supermicro can improve its gross margins and meet its revenue growth targets, the stock should have nice upside from here. Given its recent track record, though, it's not a bet I'm looking to make.
