Only Exemplary Super Micro Earnings Can Protect it from AI Fears

Dow Jones
17 hours ago

Super Micro Computer needs to report a blow out quarter if it wants to keep investor sentiment up as general market uneasiness threatens the AI trade.

Demand for AI hardware has risen dramatically in recent years as cloud providers look to grow their data center footprints to match rampant demand from hyperscalers and AI labs. Super Micro builds server and storage solutions, making it a beneficiary of this enthusiasm.

Analysts surveyed by FactSet expect the server maker to post adjusted earnings of $1.23 per share on revenue of $17.53 billion Tuesday night. That's a major jump from the earnings of 35 cents per share on revenue of $5.02 billion reported in the same period last year.

SMCI hinted at this anticipated growth on Oct. 20 when it shared preliminary results. The company said at the time it estimated revenue for the quarter of between $18.5 billion and $19.5 billion, higher than prior estimates of $14.5 billion to $15.5 billion.

However, SMCI is reporting earnings during an uncertain time for tech stocks. Investors are growing increasingly nervous about the level of spending on AI by Big Tech companies. While those investments have been a boon for SMCI, the rapacious spending seems unsustainable to many investors.

Intel saw its shares plummet 29% last Friday to $65.58 after the chip maker reported mixed third-quarter earnings.

Super Micro's stock is up 8.3% this year but down 37% from its 52-week closing high of $50.17 on June 2.

There are also other potential headwinds Wall Street is closely watching coming into the print. One being the impact component costs could have on margins.

"We remain cautious on margins as mix normalizes and given pricing pressure in the AI server/rack space, component cost increases and large deals typically have lower margins," BofA Securities analyst Ruplu Bhattacharya wrote on Oct. 21. He rates the stock as Underperform with a $38 price target.

 

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