There are ongoing challenges with margins in data centers and among cloud computing specialists.
Super Microcomputer (SMCI) saw its stock drop significantly after unveiling its fourth-quarter results for 2025, further establishing its reputation as a volatile player in the market. Although their stocks have dwindled by about 25% over the past year, they’ve managed to rebound by nearly 50% in recent times.
Over the last year, firms focusing on comprehensive computing solutions for data centers, cloud computing, enterprise IT, big data, and high-performance computing have experienced quite a tumultuous ride. They’ve been consistently adjusting their revenue projections downward throughout the fiscal year. This trend began last November, when the first-quarter revenue forecast was slashed from previous estimates of $6 billion. Then in February, they revealed that the second-quarter revenues had fallen short of expectations. By May, the forecast for the third quarter indicated revenues would be smaller than previously anticipated, leading to conservative estimates for Q4.
So, when the company once again fell short of analyst expectations while reporting its fourth-quarter financial results, perhaps it wasn’t all that surprising.
Revenue Forecast Challenges Persist
Supermicro’s revenue for this latest quarter managed to rise by 7% year-on-year, totaling $5.76 billion. However, this was below the analyst consensus of $5.89 billion, sitting at the lower end of earlier guidance, which had projected revenue between $5.6 billion and $6.4 billion.
On top of the revenue forecast issues, Supermicro is also feeling the strain of total margin pressures. This began in the June 2024 quarter, where total margins dropped significantly from 17% the previous year to 11.3%. The company attributed this decline to price reductions aimed at ensuring success with new designs.
Yet, their gross profits haven’t rebounded, due in part to transitions in the Graphic Processing Unit (GPU) platform from Nvidia, where increased price competition is affecting older platforms. By the fourth fiscal quarter, total margins slipped even further, standing at 9.5%, compared to 10.2% the previous year and 9.6% in the third quarter.
The real trouble lies with low gross profits, making it tough to convert revenue into actual profits. Supermicro is trying to enhance its total margins by diversifying into higher-margin markets like enterprises, IoT, and telecom, aiming to return margins to around 15% to 16%. However, they indicate that the current quarter’s margin situation mirrors that of the fourth quarter.
Weak gross profits are a real concern, pushing down adjusted EPS, which fell 24% to $0.41, missing the analyst consensus of $0.44. Their first-quarter revenue guidance of $6.6 billion, while within a range of $6 billion to $7 billion, accompanied an adjusted EPS expectation of $0.40 to $0.52, considerably lower than the $0.59 analysts anticipated.
Nevertheless, for the fiscal year 2026, the company anticipates substantial revenue growth, predicting at least $33 billion, equating to a 50% increase. However, this seems more skewed towards the latter part of the year. Growth is expected to come from expanding their base of enterprise customers, new product innovations, and the introduction of Data Center Building Block Solutions (DCBBS).
Should You Consider Buying the Dip?
While Supermicro’s optimistic full-year revenue forecast sounds promising, it’s hard to fully trust it, especially given the pattern of declining forecasts and unmet goals in prior years. Furthermore, the total margin issues remain unresolved. Navigating through the GPU product migration cycle continues to present challenges in this low-margin business.
From a valuation standpoint, the stock currently trades at a price-to-earnings (P/E) ratio of just over 16 times, based on analysts’ estimates for fiscal year 2026. On the surface, this seems reasonable, particularly with the revenue growth projection in mind. Yet, the landscape is markedly different from chipmaking businesses, where artificial intelligence (AI) infrastructures typically enjoy stronger margins and broader competitive advantages.
If Supermicro can turn around its gross profits and meet its revenue growth targets, there could be considerable upside potential. Still, given their recent track record, I’m hesitant to take that risk.
