Despite projecting strong demand for AI servers, Super Micro Computer, Inc. (NASDAQ:SMCI) has seen its shares fall nearly 20% after releasing its earnings report. As the AI infrastructure firm struggles with skepticism due to its delayed 10-K filing, management changes, and unmet financial goals, my investment outlook remains very optimistic on the stock, particularly if it dips further toward $40. Super Micro's valuation appears modest considering its promising AI opportunities.
Source: Finviz
Another Shortfall
Super Micro continues to encounter capital challenges, with a delayed 10-K fueling expectations of volatile results for the June quarter. The company reported its FQ4'25 results:
Source: Seeking Alpha
The company reported missing its FQ4 revenue target by $110 million, which follows a $135 million miss in FQ3, along with falling short of every analyst estimate throughout FY25. Yet, it achieved a 50% revenue growth during the year.
Despite challenges, the June quarter's revenues weren't far from the record reported in FQ1 at $5.94 billion. The market's distrust stems from the delayed 10-K filing, necessitating the need for Super Micro to hit FY26 targets to regain confidence.
During the FQ1 earnings call, CEO Charles Liang detailed causes for the revenue shortfall:
The main issues for the June revenue shortfall, despite a strong quarter, were: capital constraints hindering rapid production scaling and specification changes from a major new client, delaying revenue recognition due to new ad features.
Super Micro completed a $2.3 billion convertible debt offering in late June, resolving its capital constraints, ending June with a $5.2 billion cash balance plus $4.7 billion in inventories.
The company aims to expand from 4 large-scale datacenter clients to 6 to 8 in FY26, indicating potential growth in upcoming quarters. Additionally, their business has increasingly moved away from U.S. clients, with Asian sales rising 91% to 42% of total sales, reducing perceived risks from domestic competition.
Significant EPS Potential
In FQ4, Super Micro reported a gross margin of 9.5%, down from 10.2% the previous year. Though the company was expected to improve margins as AI demand drove sales, this was adversely impacted by delayed customer orders.
Owing to the 10-K delays, Super Micro has revised its FY26 revenue target down from $40 billion but still aims for at least $33 billion, potentially reaching as high as $40 billion, with FQ1 guidance at a record $6 to $7 billion.
Source: Super Micro FQ4'25 presentation
Super Micro has projected FY26 revenues of at least $33 billion, with basic financial models for the year as follows:
14% Gross Margin
Revenue: $33 billion
Gross profit: 14%
Operating expense: 4%
Taxes: 15.5%
Net income: $2.79 billion
EPS (644 million shares): $4.33
17% Gross Margin
Revenue: $40 billion
Gross margin: 17%
Operating expense: 4%
Taxes: 15.5%
Net income: $4.39 billion
EPS (644 million shares): $6.82
The forecasts assume gross margins will rebound to between 14% and 17%, building on the nearly 14% seen in FY24. Development of the data center building block solution (DCBBS) is intended to go beyond price competition seen in rack servers and provide higher-margin solutions to help customers become operational faster.
The financial scenarios range from a 14% gross margin on $33 billion revenues to a 17% gross margin on $40 billion revenues in FY26. EPS could rise from $4.33 to $6.82, demonstrating how slight changes in margins significantly impact earnings. However, starting FY26 closer to 10% gross margins makes these targets more of a normalized aim rather than specific figures for this year.
Consensus analyst estimates for EPS are currently set at $2.75 for FY26, rising to $3.49 in FY27, with a comparably easier FY26 revenue target of $30 billion.
Super Micro faces considerable risk: continued missing of financial targets could negatively affect its stock, and expanding gross margins while continuing to miss targets might prove challenging.
Conclusion
The primary takeaway for investors is that while the market is largely selling off Super Micro, the company seems positioned to capitalize significantly on the AI boom. For investor confidence to be restored, Super Micro must deliver strong FQ1 results, potentially paving the way for a higher stock price.