Super Micro Computer (SMCI 13.32%) shares have continued to be extremely volatile, with the stock surging ahead of its preliminary earnings report, only to dip nearly 10% the session before its report. The stock then bounced around following the announcement of its result. The stock is up nearly 40% year to date, but down about 50% over the past year, as of this writing, as the stock continues to make big moves in both directions.
Let’s take a look at the company’s most recent preliminary results and guidance to help determine what investors should do with the stock.
Lowered fiscal 2025 guidance, but big fiscal 2026 expectations
2024 was a topsy-turvy year for Supermicro, as the company faced the backlash of a short report accusing it of accounting manipulation, a delay of filing its financials, a Department of Justice (DOJ) investigation reported by the Wall Street Journal, and the resignation of its auditor.
On its earnings call, the company said it is confident it will file its 2024 annual 10-K report and first- and second-quarter 10-Q reports by the Feb. 25 deadline. It added that its special committee found no evidence to support the reasons why its former auditor, Ernst & Young, resigned. However, it did confirm that both the DOJ and SEC were investigating it, subpoenaing the company for certain documents in late 2024.
For its fiscal Q2, meanwhile, the company said revenue will come in between $5.6 billion to $5.7 billion, representing year-over-year growth of 54% at the midpoint. That is well below the $5.95 billion revenue consensus, as compiled by Bloomberg. Adjusted earnings per share, meanwhile, are expected to range from $0.58 to $0.60, reflecting only 5% year-over-year growth due to margin pressures.
One area Supermicro was seeing pressure with before the short report and filing day was gross margins, which had fallen to 11.2% in fiscal Q4 from 17% a year ago and 15.5% in Q3 2024. Gross margins play a big role in how much revenue is converted into profits, so the higher the percentage, the better. Supermicro had a low-margin business to begin with, as top semiconductor companies like Nvidia and Broadcom have gross margins of around 75%.
For fiscal Q2 2025, the company sees gross margins coming in between a range of 11.8% to 11.9%. Meanwhile, it projected fiscal Q3 gross margins of about 12%.
The company was pressed on the call by Bank of America analyst Ruplu Bhattacharya, who asked if industry margins were under secular pressure due to more competition from other AI server manufacturers and whether direct liquid cooling has become commoditized with everyone now offering a version of it. The company said it hasn’t changed its margin target, and that being first to market with the very best solutions is an advantage.
Looking ahead, Supermicro forecast fiscal Q3 revenue to come in between $5 billion to $6 billion, which was below analyst expectations for revenue of $6.09 billion, as compiled by LSEG. It is looking for adjusted EPS of between $0.46 to $0.62.
Meanwhile, the company reduced its fiscal 2025 revenue forecast to a range of $23.5 billion to $25 billion, down from prior guidance of $26 billion to $30 billion. The company said the lowered forecast was due to delays in new technology and the impact of its delayed 10-K. However, it thinks it can reach $40 billion in revenue in fiscal year 2026, representing 60% growth.
The company called its 2026 forecast “very conservative.” It sees the transition to Nvidia’s Blackwell graphic processing unit (GPU) platforms and the expansion of liquid-cooled data center solutions as growth drivers in fiscal 2026.
In addition, the company announced a $700 million private placement of new convertible senior notes due in 2028, which it said will support business growth. The new notes will pay interest of 2.25% and be convertible into common stock at an approximate 50% premium over the volume-weighted average price of its common stock on Feb. 12. It also amended its 0% coupon senior convertible notes, which will now pay 3.5% interest and be convertible at a 105% premium.
Image source: Getty Images.
What should investors do with the stock?
To quote Joe Pesci from the movie JFK, Supermicro is “a mystery wrapped in a riddle inside an enigma.” On the one hand, Supermicro is a real company that is benefiting from the AI infrastructure build-out, and that spending is only ramping up this year, so its guidance for $40 billion in revenue in fiscal 2026 is not farfetched. However, the company is clearly feeling some competitive pressure, as evidenced by its reduced fiscal 2025 guidance and very weak gross margins.
In the meantime, there still remain questions about its accounting and why its auditor suddenly resigned with unusually harsh statements. The company is also being investigated by both the DOJ and SEC over its accounting, and it faces a deadline in a couple of weeks to file or see its stock delisted, which it is confident it will meet. There is also the question of why it needed to raise new convertible debt.
The stock remains fairly inexpensive, trading at a forward price-to-earnings ratio (P/E) of under 15 times fiscal 2025 analyst estimates and at about 11 times fiscal 2026 estimates.
SMCI PE Ratio (Forward 1y) data by YCharts
That said, this is a very low-margin commoditized business that also typically doesn’t see big valuation multiples. However, if the AI infrastructure spending supercycle is going to continue, the stock is still pretty cheap. Nonetheless, with the issues still surrounding the company (from weak margins to accounting investigations), I think there are a number of safer ways to play the AI infrastructure build-out, such as Nvidia or Broadcom.
As such, I personally would just watch on the sidelines for now. But for aggressive investors, the company filing its financials by Feb. 25 could be a big catalyst for the stock. However, that’s more gambling than actual investing, in my view.
