Shares of Super Micro Computer (SMCI 5.56%) zoomed 68% higher in May, according to data from S&P Global Market Intelligence. The computing hardware provider for artificial intelligence (AI) posted significant growth in its latest quarterly results, along with improving gross margins and overall profitability. It has been a lumpy road for Super Micro Computer, with massive price drawdowns and short-seller reports, but the stock has gotten off to a better start in May.
Here's why the stock was dipping, and whether it is a buy for your portfolio now.
NASDAQ: SMCI
Key Data Points
More growth, margin recovery
In the quarter ending in March, Super Micro Computer posted net sales of $10.2 billion, up from just $4.6 billion a year prior. After a lull in 2025, the business has roared back with its full-scale IT, data center, and AI computing services. Super Micro Computer is the middleman between computer chip designers like Nvidia and the data center infrastructure providers like Amazon.
With capital expenditures on AI continuing to rise, Super Micro Computer should have a growing demand from its customer base. In late May, its competitor Dell reported earnings with 88% revenue growth. A rising tide is lifting all stocks in the sector, with investors wanting a piece of any stock associated with the AI build-out at the moment.
Super Micro Computer is generating slim margins, but they have improved from years past. Gross margins were 9.9% last quarter, and income from operations grew to $626 million this quarter compared to $147 million a year prior.
Image source: Getty Images.
A cautionary tale with Super Micro Computer stock
With rapid growth, Super Micro Computer's stock may look cheap given its current price-to-earnings ratio (P/E) of 25. However, there are many concerning factors with this business. First, short sellers have thoroughly researched this business and have not liked what they found, alleging circular revenue deals and potentially skirting of export ban rules. These are risks investors should not ignore.
As well, Super Micro Computer's inventory and accounts receivable are booming, meaning that the revenue it has posted on its income statement is not being converted into cash and deposited in its balance sheet from customers. This is a sign of weak revenue and weak negotiating leverage with its customers.
Lastly, if spending on AI infrastructure slows, Super Micro Computer's revenue is likely to collapse. With this in mind, it is hard to find a reason for an investor with a long-term time horizon to buy the stock right now. Avoid Super Micro Computer despite its rapid revenue growth.
