Supermicro's stock has dropped by about 60% from its all-time high.
Its revenue growth is slowing, and its gross profit margin is also falling.
But if it stabilizes its business, it looks underestimated relative to its growth potential.
10 Better Stocks than Supermicrocomputers›
Super microcomputer (NASDAQ: SMCI)In the past year, it is commonly known as Supermicro. Manufacturers of artificial intelligence (AI) servers made 1,020% gains over the past 12 months, with a record split-adjusted high of 118.81 on March 13, 2024.
At that time, the sales of liquid-cooled AI servers left a deep impression on investors. Nvidiahigh-end data center graphics processing unit (GPU). But today, Supermicro is trading at about $47.
Supermicro has lost its luster due to accounting issues, auditor departures, threats and regulatory investigations. Its slowdown in growth and lower gross margins also suggest that it is losing pricing power to larger competitors.
The company finally hired a new auditor, filed the auditor 10-K in February, avoiding a picky look that seemed to calm the regulator. However, its growth is still cooling as macro and competitive headwinds intensify in the evolving AI market. So, should investors still buy their stock today?
Compared with market leaders HP Packard Enterprise and Dell Technology. But it carves a niche with a dedicated AI server, Raymond James It is estimated that it now controls about 9% of the growing market. Its close relationship with Nvidia also gives it a stable supply of top-tier data center GPUs.
Supermicro's revenue surged 46% in its fiscal year 2022 (ends in June 2022), and 110% in fiscal year 2024. Its gross profit margin expanded from 15.4% in fiscal 2022 to 18% in fiscal 2023.
However, its gross margin fell to 14.1% in fiscal 2024 due to more intense competition and relied on aggressive pricing strategies to sell more servers. Over the past year, its revenue growth has continued to decline as gross margins shrink.
| Metric system | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 |
|---|---|---|---|---|---|
| Revenue Growth (YOY) | 201% | 144% | 180% | 55% | 19% |
| Gross profit margin | 15.5% | 11.2% | 13.1% | 11.8% | 9.6% |
Data source: Super Meta. Yes = year-on-year.
Many of its customers have delayed new AI server purchases in anticipation of NVIDIA's next-generation Blackwell chips, while supply chain constraints make it more difficult to fulfill its existing orders. Macro headwinds exacerbate this pressure by forcing many companies to control spending on expensive AI servers. As a result, its inventory levels have risen, pricing power has decreased, and gross profit margin has been reduced.
In the fourth quarter of fiscal 2025, SuperMicro expects its revenue to grow at a midpoint of 13%, as it increases production of its Blackwell-Power-Power server and data center building block solutions, which bundles its AI servers and software for rapid deployment.
Over the entire year, it expects its revenue to grow 46% to 51%. This prospect is still impressive, but it has a growth rate of 57%, growing to 67%.
Analysts expect their revenue to grow 48% in fiscal 2025, 36% in fiscal 2026 and 25% in fiscal 2027. We should estimate it with salt, but investors should not expect it to grow as fast as it has been in the past three years.
This slowdown is no surprise as Hewlett Packard Enterprise, Dell and other major server manufacturers have been launching more dedicated AI servers for the booming market. Supermicro has built an advantage of early promoters in the field, but doesn't have much moat for these competitors' moats.
Supermicro still faces many macro and competitive challenges, but it seems like a bargaining in next year's revenue. According to MarketSandMarkets Research, the AI server market may still have a CAGR of 34.3% from 2024 to 2030, so Supermicro, Hewlett Packard Enterprise and Dell may have a lot of room, and Dell can grow without trampling on each other.
If you think Supermicro can defend its niche with its high-end liquid-cooled servers, its stock may be worth accumulating as its trading is well below its all-time high. However, investors should keep a close eye on their gross margin to see if it can maintain its pricing power in this tough market.
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Leo Sun has no position in any of the stocks mentioned. Motley fool has a place and recommends Nvidia. Motley Fool has a disclosure policy.
Are you buying a super microcomputer now? Originally published by Motley Fool