On Aug. 5, 2025, Super Micro Computer (SMCI 3.88%) released results for the company's fiscal fourth quarter, ending June 30, 2025. The artificial intelligence (AI) server maker's shares fell by over 20% on disappointing results and guidance.
Since then, the stock has started to retreat. However, perhaps the dust hasn't settled, and this could instead be the calm before the storm.
Three issues persist, all of which could continue to impact Supermicro's growth, profitability, and the value of its shares: falling market share, squeezed margins, and the threat of losing key customers.
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Why SMCI stock tanked after earnings
On both revenue and earnings, Supermicro's Q4 FY2025 results fell short of analysts' expectations:
|
Metric |
Analyst Forecast (Q4 2025) |
Actual Results (Q4 2025) |
|---|---|---|
|
Revenue |
$6 billion |
$5.8 billion |
|
Adjusted earnings per share (EPS) |
$0.45 |
$0.41 |
Data source: Super Micro Computer.
On a year-over-year basis, Supermicro's Q4 revenue increased by only 7.5%, a far slower pace than in prior quarters. Even worse, the company's adjusted EPS fell by 24% year over year, a wider-than-expected decline.
CEO Charles Liang may have blamed the revenue miss on delayed revenue recognition and the earnings miss on recent tariff hikes. Still, I believe the market took these disappointing results as a sign that the competition continues to get the better of Supermicro.
Alongside disappointing quarterly results, the company also released disappointing updates to guidance. Full-year revenue guidance of $33 billion, or 50% above reported FY2025 revenue, may sound impressive, but previously, the company was guiding for $40 billion in revenue for the fiscal year ending June 30, 2026.
Furthermore, with Q1 FY2026 guidance calling for between $6 billion and $7 billion in revenue, it's questionable whether Supermicro can even hit its walked-back revenue target for the full year.
While the company's quarterly results fell short, its annual revenue came in ahead of expectations, growing by 47% over the prior fiscal year. Still, given the latest slowdown and decline in revenue and profitability, I'm skeptical that a rebound is just a few quarters away.
Supermicro's growth, profitability, and stock price remain under threat
Trading for around 25 times annual earnings, Supermicro trades at a premium to direct competitors like Dell Technologies (DELL 2.39%) and Hewlett Packard Enterprise (HPE 3.76%). Dell and HPE both currently trade for 20 times earnings.
In the past, Supermicro's valuation premium made sense. After all, this company was an early mover, capitalizing on its strong ties with Nvidia (NVDA 1.83%) to quickly bring out cutting-edge AI server products. However, since then, competitors have gained a greater edge.
In turn, this has led to a sharp decline in market share, a trend that is one of three reasons why I'm cautious about Supermicro stock right now. Between 2022 and 2024, the company's share of the AI server market fell from at least 80% to between 40% and 50%.
Further declines may lie ahead. Last month, analysts at Bank of America (BofA) argued that rivals Dell and HPE are better positioned to win new business from enterprise clients. This makes sense, given their existing relationships with such clients.
Additional market share losses could result in a further slowdown in sales growth, but that's not all. High competition could also place further pressure on margins, the second reason I'm concerned about this stock. In recent years, Supermicro's gross margins have shrunk from 18% to 9.5%.
An additional squeeze is possible. Back in June, analysts at KeyBanc argued that a lack of product differentiation points to Supermicro having to compete on price to sustain higher growth. The impact of this on margins could counter the positive impact of a sales resurgence.
To top it all off, there's another long-standing risk with Supermicro that also makes me concerned about future performance: the risk of losing major customers. Reportedly, key customers like CoreWeave and X.ai have started placing AI server orders with Dell. If these customers fully switch over to a competitor for their AI server needs, this could materially affect Supermicro's future revenue and earnings.
Bottom line: I'm sticking to the sidelines
If the aforementioned issues lead to an additional growth slowdown and/or drop in profitability, the impact on the price of Supermicro shares could be significant.
Over the past 12 months, this stock has traded for as low as $17.25 per share. Supermicro could retrace this past low if quarterly results continue to disappoint, management keeps walking back expectations, and SMCI's valuation premium to Dell and HPE continues to erode.
Given these risks, I'm waiting things out -- at least until subsequent developments emerge that help to assuage my concerns.
