TLDR:
- Super Micro Computer (SMCI) expects Q2 revenue of $5.6-5.7B, below analyst estimates, with adjusted EPS of $0.58-0.60
- Company lowered FY2025 revenue guidance to $23.5-25B from previous $26-30B range, but projects $40B revenue for FY2026
- SMCI faces ongoing DOJ and SEC investigations, with a deadline to file delayed financial reports by February 25, 2025
- Analysts have raised price targets despite concerns – Wedbush to $40, Northland to $57, JPMorgan to $35
- Stock remains volatile, up 40% YTD but down 50% over past year, with gross margins under pressure at 11.8-11.9%
Super Micro Computer (SMCI) released its preliminary second-quarter earnings report, revealing a mix of challenges and ambitious growth projections that have left investors weighing the company’s prospects in the AI server market.
The server hardware manufacturer expects Q2 revenue to land between $5.6 billion and $5.7 billion, representing a 54% year-over-year increase but falling short of the $5.95 billion consensus estimate compiled by Bloomberg. Adjusted earnings per share are projected at $0.58 to $0.60, showing modest 5% growth from the previous year.
Super Micro has revised its fiscal 2025 revenue guidance downward to $23.5-25 billion, a reduction from its earlier forecast of $26-30 billion. The company attributed this adjustment to delays in new technology rollouts and impacts from its delayed 10-K filing.
Despite these near-term challenges, CEO Charles Liang has set an ambitious target of $40 billion in revenue for fiscal year 2026, representing a 60% growth rate. The company believes this goal is “very conservative,” citing the upcoming transition to Nvidia’s Blackwell GPU platforms and expanding liquid-cooled data center solutions as key growth drivers.
Gross margins remain a pressing concern for the company. For Q2 2025, Super Micro projects margins between 11.8% and 11.9%, notably lower than competitors like Nvidia and Broadcom, which maintain margins around 75%. This represents a decline from the 17% margins reported a year ago.
Regulations & Concerns
The company faces ongoing regulatory scrutiny following accusations from short-seller Hindenburg Research in August 2024. Both the Department of Justice and Securities and Exchange Commission have launched investigations, with the company receiving subpoenas for certain documents in late 2024.
Adding to investor concerns, Ernst & Young resigned as the company’s auditor in October 2024, citing governance and transparency issues. However, Super Micro’s special committee reports finding no evidence to support the reasons behind the auditor’s resignation.
The company now faces a crucial deadline of February 25, 2025, to file its 2024 annual 10-K report and first- and second-quarter 10-Q reports to avoid potential stock delisting. Management has expressed confidence in meeting this deadline.
In a move to support business growth, Super Micro announced a $700 million private placement of new convertible senior notes due in 2028, carrying a 2.25% interest rate. The company also amended its existing 0% coupon senior convertible notes to pay 3.5% interest.
The stock’s performance has been highly volatile, currently trading at a forward price-to-earnings ratio under 15 times fiscal 2025 analyst estimates and about 11 times fiscal 2026 estimates. While up 40% year to date, the stock remains down approximately 50% over the past year.
Several analysts have adjusted their outlook on Super Micro following the latest announcements. Wedbush raised its price target to $40 from $24, maintaining a neutral rating. Northland increased its target to $57 from $54 with an outperform rating, while JPMorgan lifted its target to $35 from $23 while keeping an underweight rating.
For fiscal Q3, Super Micro provided guidance of $5-6 billion in revenue, below analyst expectations of $6.09 billion. The company anticipates adjusted EPS between $0.46 and $0.62 for the quarter.
The company highlighted its position in the direct liquid cooling (DLC) technology sector, with over 30% of new data centers expected to adopt this technology in the next 12 months. Management maintains that being first to market with leading solutions provides a competitive advantage.
