Super Micro Computer Stock (SMCI) Erases Recent Losses Pre-Market

Super Micro's stock (NASDAQ: SMCI) has been in the midst of a wave of volatility, with longer term holders more used to the recent wild swings than most. The company, a prominent vendor in the high-performance server market propelled by the artificial intelligence revolution has seen it's stock price shed 15% in the final two days of last week, only to erase those losses with a 10.66% gain on Monday, and a further 7% gain through this morning's pre-market.

While the stock boasts a respectable year-to-date gain of 9.8% (before today's pre-market action), this figure masks a much harsher reality over the medium term. Over the past twelve months, the SMCI stock price has fallen 64%, treating holders to a level of volatility that is relatively difficult to stomach.

If that was not enough, zooming out further gives an indication as to why the stock has such a following. Over the past 5 years, Super Micro has delivered gains of more than 1,400%, fueled by the insatiable demand for AI computing infrastructure.

What Comes Next?

Fundamentally, the investment thesis for SMCI remains anchored to the secular growth trend in AI. Management projects confidence, issuing fiscal year 2025 revenue guidance between $23.5 billion and $30 billion, with ambitious aspirations of potentially reaching $40 billion in revenue for fiscal year 2026.

Innovations such as the rollout of Direct Liquid Cooling (DLC) solutions, crucial for managing heat in dense compute environments, and the company’s positioning to leverage next-generation GPUs like Nvidia's anticipated Blackwell architecture, are key pillars of this optimistic outlook. Furthermore, the company has recently alleviated governance concerns by timely filing required financial reports, avoiding potential Nasdaq delisting and addressing previous anxieties surrounding accounting practices. Its balance sheet is also considered strong, characterised by relatively low debt.

However, significant headwinds challenge this narrative. Analysts highlight concerns over declining gross profit margins, which are expected to potentially contract to the 11.8% to 11.9% range. Competition within the server market is also intensifying, with established technology giants like Dell Technologies and Hewlett Packard Enterprise increasingly vying for market share in the lucrative AI server space.

For the upcoming quarter, due to report next month, consensus estimates for Earnings Per Share (EPS) range from $0.38 to $0.53. This forecast represents a potential year-over-year decline compared to the $0.66 EPS reported for the same quarter last year, suggesting profitability may be under pressure despite revenue growth aspirations. While SMCI did manage to beat consensus estimates in its previous quarter (December 2024), the forward-looking estimates indicate potential near-term earnings headwinds.

Despite the stock's recent underperformance and margin concerns, Wall Street analysts maintain a cautiously optimistic stance on average, reflected in a consensus “Buy” rating. The average 12-month price target sits at $58.96, implying significant potential upside from the current trading level. However, this average masks considerable divergence among analysts, with individual price targets spanning a wide range from a low of $15.00 to a high of $73.00.

If recent trends are anything to go by, there will be plenty more volatility in the weeks ahead, and Super Micro holders may experience this more than most.