After seeing its shares tumble when the company pre-announced disappointing fiscal third-quarter results, Super Micro Computer (NASDAQ: SMCI) stock was once again falling after the company reported its full results and issued weak guidance.
It’s been a crazy 2025 for the stock, which finds itself near breakeven on the year. However, it’s also down nearly 50% since mid-February.
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The stock initially posted a huge rally after Supermicro was able to file its annual reports, potentially ending a saga related to its accounting. A short-seller initially accused Supermicro of manipulating its accounting, and the company subsequently delaying its annual report and its auditor resigning only added fuel to the fire. The fact that the Securities and Exchange Commission (SEC) had fined the company a few years earlier over accounting issues also didn’t help its image.
Even as the stock rallied, though, underlying issues have been popping up with Supermicro’s operational results. This is not the first time the company has lowered its fiscal-year guidance. It’s been a consistent theme. In November, it slashed its fiscal first-quarter revenue guidance to a range of $5.9 billion to $6 billion from earlier guidance of between $6 billion and $7 billion. In February, meanwhile, it also announced that its fiscal Q2 revenue would fall short of expectations.
In addition to its struggles forecasting revenue, Supermicro has also seen gross margin pressure. This began in its fiscal Q4 ending in June 2024, when its gross margin sank to 11.3% from 17% a year earlier. The company said that this was because it reduced prices in order to secure new design wins. The lower gross margins are, the more difficult it is to turn revenue into profits.
Problems persist
With its fiscal Q3 report and guidance, Supermicro’s past issues show no signs of letting up.
For the quarter, its revenue rose 19% to $4.6 billion, but that was well short of its earlier guidance for sales to range between $5 billion and $6 billion. Meanwhile, its fiscal Q4 guidance calling for sales of $5.6 billion to $6.4 billion also fell well short of the $6.82 billion analyst consensus, as compiled by LSEG.
At the time of its pre-announcement, Supermicro said customers were delaying platform decisions, which would move sales into its fiscal Q4. On its conference call, the company expanded on this, noting that it was due to customers waiting to evaluate the difference between Nvidia‘s Hopper and Blackwell graphics processing units (GPUs).
However, with its fiscal Q4 forecast far below estimates, it appears not enough of these sales were pushed into its June quarter. It now expects these commitments to come in the June and September quarters. It also cited tariffs and current macroenvironment uncertainty for its cautious outlook.
Gross margins also remained an issue, falling to 9.6% in the quarter. As a hardware integrator, Supermicro operates in a low-margin business. While it adds value by helping customers customize their server setups, the industry is highly competitive, with limited room for differentiation. Meanwhile, much of its revenue comes from passing through expensive components like GPUs.
However, the big drop in gross margins over the past year-and-a-half has been concerning. Meanwhile, it forecast gross margins to be around 10% in fiscal Q4, showing little sign of a recovery in the near term. It said its latest margin pressure stems from the GPU transition, with more price competition surrounding older platforms. It also noted pressure coming from tariffs.
Image source: Getty Images.
Should investors buy the dip in the stock?
Brushing aside the accounting accusations and everything that went along with them, Supermicro is a company that has had its struggles. Revenue growth expectations have consistently been pushed lower over the past year, while already low gross margins have also come down considerably.
Now the stock appears cheap, with a forward price-to-earnings ratio (P/E) of under 9x based on fiscal-year 2026 analyst estimates. However, it is still to be seen if these estimates need to come down, as the company did not give fiscal 2026 guidance.
Supermicro should benefit from increased artificial intelligence (AI) infrastructure spending. However, it is in a low-margin, low-moat business, and the company has struggled. This is far different than a company like Nvidia that has gross margins above 70% and a wide technological moat.
Overall, I think the best way to play AI infrastructure is with the stocks of companies that have strong technology and attractive margin profiles. That description just does not fit Supermicro.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
