By A Loop Capital analyst adjusted their price target for Super Micro Computer Inc (NASDAQ:SMCI) stock on Monday, reducing it from $1,500 to $1,000, citing the AI server maker’s efforts to restore its gross margin (GM) and operating margin (OM) to 14% and 10%, respectively, as well as the investors’ concerns regarding the company’s delayed 10-K filing.
Still, the analyst believes that the recent speculation of SMCI’s possible demise “is greatly exaggerated and that its importance to the Gen AI server conversation is underappreciated.”
Super Micro’s 10K filing delay weighs on optimism
Super Micro in August said it is delaying its annual report filing, citing the need to evaluate “its internal controls over financial reporting,” leading to a sharp drop in the company’s shares.
The stock lost nearly 20% in the past month.
The delay followed a day after short-seller Hindenburg Research revealed it had taken a short position in the company, accusing Super Micro of “accounting manipulation.” Since reaching a high in mid-March, SMCI shares have been steadily declining, losing nearly two-thirds of their value after a surge driven by the AI boom.
It remains unclear if the company’s decision was linked to Hindenburg’s report.
The company also did not revise its previously reported results for the fiscal year and quarter ending June 30. Last month, Super Micro posted a drop in quarterly margins due to rising server production costs and increased competition from rivals such as Dell (NYSE:DELL).
The company had been a major beneficiary of the generative AI surge, as businesses invested in technology to support applications like ChatGPT. SMCI valuation soared from around $4.4 billion at the start of 2023 to a peak of $67 billion in March.
However, the rapid rise of AI stocks has slowed since March, as investors have come to realize that the return on companies’ heavy investments may take longer than anticipated.
Super Micro’s delay in filing its 10-K has prompted several downgrades and price target reductions from Wall Street analysts in recent weeks, further dampening investor sentiment around the stock.
Blackwell to help SMCI’s margins recovery, analyst says
Despite recent headwinds and a price target reduction from $1,500 to $1,000, an analyst at Loop Capital believes it’s not all doom and gloom for Super Micro.
According to the analyst, SMCI has the potential to achieve over $40 billion in normalized revenue.
Conversations with customers indicate a feasible path to returning to a GM of over 14% and an OM of over 10%, with the help of NVIDIA Corporation’s (NASDAQ:NVDA) upcoming next-gen GPU architecture, Blackwell. The firm believes that with such revenue growth and margin profiles, SMCI could command a price-to-earnings (P/E) ratio of at least 20 times, justifying normalized earnings per share (EPS) of $50.00.
Loop Capital also presented several “What If” scenarios regarding SMCI’s future performance.
These included the possibility of SMCI maintaining its revenue upside for the fiscal 2025 year at $30 billion and regaining GM and OM targets in the next four quarters. The analysis highlights SMCI’s continued preference as the original equipment manufacturer (OEM) through the Blackwell cycle, which is expected to extend through most of the calendar year 2026.
The analyst also discussed the competitive landscape, noting that while other Gen AI server vendors are entering the market, they do not “offer the same high-margin services as does SMCI (such as rack integration and tuning)… and the ODM’s look at 3rd-Parties for this capability doesn’t fit the bill.”
“As such, customers currently see paying SMCI an additional GM of 200 – 300bps as the likely outcome for Blackwell, moving GM back to the 14%+ range,” they added.
Regarding the 10-K filing delay, the analyst sees it as a minor hurdle and potentially reflective of a company experiencing rapid growth and focusing on execution.
