Super Micro Computer (NASDAQ: SMCI) was having a rough day today after the artificial intelligence (AI) server maker reported another strong quarter of sales growth, but margins compressed faster than expected and it badly missed estimates on the bottom line.
The stock was down 18% as of 1:54 p.m. ET on the news.
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Supermicro suddenly shows weakness
Supermicro, as the company is also known, has been one of the best-performing stocks in the AI boom, but the bull thesis took a hit last night as the company reported a sharp decline in gross margin, showing it was facing rising input costs and was unable or unwilling to pass them along to customers.
Revenue in the fiscal fourth quarter soared once again, jumping 144% to $5.31 billion, which matched analyst estimates.
Gross margin fell from 17% to 11.2%, which restrained bottom-line growth. Adjusted earnings per share rose from $3.51 to $6.25, but that was well below estimates at $8.07, which had investors heading to the exits.
Management said it had a path to improve gross margin to 14% to 17% as it introduces new platforms and improves manufacturing efficiencies.
CEO Charles Liang added, “We are well positioned to become the largest IT infrastructure company, driven by our technology leadership including rack-scale DLC liquid cooling.”
Can Supermicro recover?
Looking ahead to the first quarter of fiscal 2025, the company forecast revenue of $6 billion to $7 billion, up from $2.06 billion in the quarter a year ago, or 215% at the midpoint, which was much better than estimates at $5.46 billion. It also called for adjusted earnings per share of $6.69 to $8.27, which was slightly worse at the midpoint than the consensus at $7.58.
If you believe management’s reassurance about gross margin bouncing back, the sell-off looks overdone. In fact, Supermicro is now trading at a forward P/E of 15 based on fiscal 2025 estimates, though those estimates could come down. Based on that, the stock looks like a steal considering how fast the business is growing.
