Super Micro Computer (NASDAQ:SMCI) has been one of the hottest names in the AI hype rally this year. SMCI stock is probably second to Nvidia (NASDAQ:NVDA) in AI stocks. SMCI surged over 1,200%, but the AI hype is fading quickly, with SMCI down over 50%.
Regardless, SMCI still sits at an impressive 75% gain year-to-date. Many investors are wondering if this highflying AI infrastructure play is a buy after the recent pullback. Let’s dig deeper!
Q4 Results and SCMI Stock
Super Micro just reported fiscal Q4 2024 results that were a mixed bag. Revenue surged 143% year-over-year to a record $5.31 billion, slightly beating estimates.
However, adjusted EPS of $6.25 missed the consensus by a wide margin. Gross margins also contracted significantly to 11.3%, the lowest level since 2007, due to higher server production costs and pricing pressures.
On the earnings call, Super Micro’s management came across as overly promotional and inexperienced, in my view. They seemed to be trying to overpromise in the current uncertain macro environment.
The company raised its full-year fiscal 2025 revenue outlook to $26-30 billion, but this bullish forecast didn’t seem to align with the weaker profitability metrics.
AI Hype Fades, Valuation Comes Back to Earth
It’s no surprise SMCI stock sold off over 10% after the earnings report, despite the company announcing a 10-for-1 stock split.
In a recessionary environment, investors are increasingly focused on profits and risk management. Super Micro’s growth promises rang hollow without the margins to back them up.
However, it’s important not to get caught up in recency bias. After the steep pullback, SMCI is no longer trading at a nosebleed valuation.
The stock currently trades around 18 times forward earnings and just 1.5 times forward sales. The company is still poised to benefit from major tailwinds in AI, cloud computing, and data center growth over the long run.
Analysts Divided on Near-Term Prospects
Wall Street analysts are split on where SMCI stock goes from here in the near-term. Bullish analysts point to Super Micro’s dominant position in the fast-growing AI server market and see further upside ahead. Jefferies recently reiterated a “Buy” rating and a reduced $950 price target.
However, bearish analysts are concerned about the company’s margin trajectory and execution risks as it ramps up the production of new direct liquid cooling solutions.
SMCI still has growing pains and a lack of near-term catalysts. The average analyst price target of $978 still implies a big 58% upside from current levels.
Investors Should Wait for More Consistency
My view is that SMCI could be worth nibbling on for very long-term oriented investors. But I would wait to see if management can improve the margin trajectory over the next few quarters before getting too bullish.
Broader market pressures could take SMCI lower in the near-term if we see a continued unwind in AI-related stocks.
For now, I’m sticking with a “Hold” rating on SMCI. The AI servers growth story is powerful, but I’d like to see more consistency in financial execution to regain confidence in the stock after the recent volatility.
Investors should keep this one on the radar but may want to wait for the dust to settle before hitting the buy button.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
