In a significant development, Loop Capital has revised its price target for Super Micro Computer Inc (NASDAQ: SMCI) from $1,500 to $1,000. The adjustment comes as the AI server maker grapples with efforts to restore its gross margin (GM) to 14% and operating margin (OM) to 10%, alongside investor concerns over the company's delayed 10-K filing.
Despite these challenges, the Loop Capital analyst contends that speculation around SMCI’s potential downfall is "greatly exaggerated" and that its role in the generative AI server market remains underappreciated.
Super Micro’s 10-K Filing Delay Raises Red Flags
In August, Super Micro announced a delay in its annual report filing to evaluate its "internal controls over financial reporting," leading to a sharp share price drop.
The stock has plummeted nearly 20% over the past month.
This delay came shortly after Hindenburg Research disclosed a short position in the company, accusing Super Micro of "accounting manipulation." Since hitting a high in mid-March, SMCI shares have steadily declined, losing nearly two-thirds of their value despite an earlier surge driven by the AI boom.
While it remains uncertain if the delay is linked to Hindenburg's report, the company has not revised its previous results for the fiscal year and quarter ending June 30. Last month, Super Micro reported a drop in quarterly margins due to rising server production costs and heightened competition from industry giants like Dell (NYSE: DELL).
Previously, Super Micro was a major beneficiary of the generative AI surge, with businesses investing in technologies like ChatGPT. SMCI's valuation skyrocketed 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 decelerated since March, as investors realize that returns on these heavy investments may take longer to materialize.
The delay in Super Micro’s 10-K filing has triggered multiple downgrades and price target reductions from Wall Street analysts, further dampening investor sentiment.
Analyst Sees Path to Margin Recovery with NVIDIA's Blackwell
Despite the recent headwinds and the price target reduction from $1,500 to $1,000, Loop Capital’s analyst remains optimistic about Super Micro's prospects.
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%, aided by NVIDIA Corporation's (NASDAQ: NVDA) upcoming next-gen GPU architecture, Blackwell. 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 explored 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 within the next four quarters. The analysis underscores SMCI's continued preference as the original equipment manufacturer (OEM) through the Blackwell cycle, expected to extend through most of the calendar year 2026.
The competitive landscape was also discussed, noting that while other Gen AI server vendors are entering the market, they do not offer the same high-margin services as SMCI (such as rack integration and tuning). The analyst suggests that customers are likely to pay SMCI an additional GM of 200–300 basis points, moving GM back to the 14%+ range.
Regarding the 10-K filing delay, the analyst views it as a minor hurdle, potentially indicative of a company experiencing rapid growth and focusing on execution.
Breaking It Down: What This Means for You
If you're an investor in Super Micro Computer Inc or considering a stake, here's what you need to know:
- Price Target Reduction: Loop Capital has reduced SMCI's price target from $1,500 to $1,000 due to margin restoration efforts and a delayed 10-K filing.
- 10-K Filing Delay: The delay has spooked investors, leading to a 20% drop in stock value over the past month. It's essential to monitor how the company resolves this issue.
- Market Position: Despite current challenges, SMCI remains a key player in the generative AI server market, underpinned by upcoming technologies like NVIDIA's Blackwell.
- Future Prospects: Analysts see a feasible path to revenue growth and margin recovery, suggesting that the stock could rebound if these targets are met.
In summary, while current issues pose short-term risks, Super Micro Computer Inc's long-term prospects remain promising if it can successfully navigate these hurdles. Investors should stay informed and consider both the potential downsides and upsides before making decisions.