Shares of Super Micro Computer (SMCI -6.53%) are falling on Wednesday. The stock lost 6.7% as of 1:36 p.m. ET, and as much as 7.1% earlier in the day. The leg down comes as the S&P 500 (^GSPC 0.02%) gained 0.4% and the Nasdaq Composite (^IXIC -0.96%) lost 0.1% on the day.

A miss from Supermicro

The artificial intelligence (AI) server provider released its Q3 2025 earnings yesterday after the market closed. The numbers underwhelmed investors.

Supermicro reported adjusted earnings per share (EPS) of $0.31 on revenue of $4.60 billion, falling well short of Wall Street's expectations of $0.50 and $5.42 billion, respectively. While this wasn't a surprise -- the company released preliminary numbers last week -- the confirmation of the weak quarter sent the stock lower.

The main concern comes from the company's shrinking margins. Despite growing sales by 19% year over year (YOY), net income declined dramatically from $402 million in Q3 2024 to $109 million in Q3 2025. Supermicro's gross margins fell from 15.5% to 9.6% in the same period.

Image source: Getty Images.

Guidance disappoints further

Given that preliminary numbers for this quarter were already known, perhaps the biggest disappointment came from Supermicro's forward guidance. The company projected Q4 adjusted EPS of $0.40 to $0.50 on sales between $5.6 billion and $6.4 billion, well below Wall Street's targets of $0.69 in adjusted EPS on $6.82 billion in revenue. Adding to the uncertainty, the company declined to provide guidance for 2026, citing tariff-related uncertainty.

The disappointing earnings come at a time when the company is still recovering from the controversy surrounding its accounting practices and the high-profile resignation of its then-auditor, Ernst & Young.

There are too many red flags here for my money, so I would stay away from Supermicro stock.