Super Micro Computer Shares Plummet Following Barclays Downgrade

Barclays downgrades Super Micro Computer on AI server concerns and market share loss By Investing.com

On Wednesday, Barclays (LON:BARC) downgraded Super Micro Computer (NASDAQ:SMCI), traded on NASDAQ:SMCI stock, from Overweight to Equalweight, significantly reducing the price target to $438 from the previous $693. The adjustment comes amid concerns about the company's future gross margins in the artificial intelligence (AI) server market, its competitive stance, and corporate governance issues. The firm expressed a more cautious stance due to several factors impacting Super Micro Computer. Among the concerns are the unclear trends in AI server gross margins, ongoing loss of customers, and a weakening competitive position in the GB200 era, which refers to the next generation of server platforms. The analyst also pointed to the need for higher working capital and the potential for improvements in internal controls and corporate governance. Barclays highlighted the necessity for Super Micro Computer to enhance transparency in financial reporting, specifically regarding quarterly order intake and backlog details. Despite these concerns, the firm remains positive about the long-term prospects of AI technology. The new price target of $438 is based on a 12 times forward earnings multiple, applied to the fiscal year 2025 estimated earnings per share of $36.48. This valuation approach aligns with the target multiple used for Dell (NYSE:DELL), Super Micro Computer's largest competitor. Barclays has made no changes to its earnings model for Super Micro Computer at this time. In other recent news, Super Micro Computer Inc. has been in the spotlight due to a series of developments. The company refuted allegations by Hindenburg Research of accounting irregularities, describing the report as containing "false or inaccurate statements." Despite this controversy, Super Micro assured stakeholders of no significant adjustments to its fourth-quarter or fiscal-year financial outcomes. In response to these allegations, Super Micro postponed the filing of its annual report to reevaluate its internal controls over financial reporting. This delay led to varied responses from analysts. Rosenblatt maintained a Buy rating on Super Micro's shares, while CFRA and Wells Fargo (NYSE:WFC) downgraded their ratings due to the allegations. Super Micro also issued a letter to its customers and partners, which was filed with the Securities and Exchange Commission. The content of the letter remains undisclosed, but it represents the company's commitment to transparency and communication with its stakeholders. The company previewed its new X14 server platforms built on the upcoming Intel® Xeon® 6900 series processors. These servers aim to maximize performance for compute-intensive workloads. Despite these advancements, Super Micro reported record-breaking fiscal year revenues of $14.94 billion, with fourth-quarter revenues reaching $5.31 billion. Lastly, Super Micro appointed Susie Giordano to its board of directors and projected a revenue of between $26 billion and $30 billion for fiscal year 2025. These recent developments provide a glimpse into the ongoing activities within Super Micro Computer Inc.

Super Micro Computer shares tumble on Barclays downgrade By Investing.com

Super Micro Computer shares were down 3% in pre-market trading at 8:18 am (1214 GMT) Barclays' analysts have raised concerns about SMCI's future prospects, prompting a downgrade to an equal weight rating and a revised price target of $438. This is mainly due to the company's declining gross margins, persistent customer losses, and issues with internal controls. One of the key factors behind the downgrade is SMCI's recent performance in terms of gross margins. In the June quarter, the company's overall gross margin fell significantly to 11.3%, marking a 430 basis point decline from the previous quarter. The gross margin for AI servers was reported to be in the high single digits, while Dedicated Liquid Cooling (DLC) server margins were even lower. "MCI has been giving away DLC components for free to match or price below the air-cooled rack pricing provided by Dell (NYSE:DELL)," said analysts at Barclays. The pricing strategy, combined with supply chain constraints, has pressured margins, leading to concerns about potential P/E multiple compression and diminished investor confidence. "SMCI has been ceding shares in its top two customers: Musk entities and Coreweave (private, not covered, except for TSLA (NASDAQ:TSLA))," the analysts said. Previously, SMCI had an exclusive supplier relationship with Musk Inc., but recent developments have seen the business split evenly between SMCI and Dell. This shift has resulted in a drop in SMCI's market share, to around 50% by June 2024 from 100% in 2023. Coreweave, another major customer, has also reduced its reliance on SMCI, a trend analysts attribute to improved GPU supply and Dell's strengthened competitive position. Adding to these challenges is the uncertainty surrounding the new GB200 server platform. Barclays' analysts worry that SMCI might hold a smaller market share in GB200 servers compared to its position with Hopper-based servers. The expected lower margins for GB200 servers could further pressure SMCI's profitability. Additionally, the absence of definitive customer orders for the GB200 platform exacerbates the uncertainty, especially as competition heats up and margins could potentially shrink. Another concern for Barclays is SMCI's internal controls and corporate governance. The delay in filing the 10-K report has raised red flags, highlighting issues related to transparency and governance. SMCI's lack of detailed financial disclosures, including quarterly order intake and backlog, has been a point of contention. The company's past history with regulatory issues and its previous delisting from Nasdaq have only intensified these concerns. In light of these factors, Barclays has adjusted its price target for SMCI to $438, using a valuation multiple of 12x FY25E EPS of $36.48. This new target aligns more closely with Dell's valuation multiple, reflecting a more cautious stance given the current margin trends and internal issues. While Barclays remains optimistic about the long-term prospects of the AI sector, it has identified Flex (NASDAQ:FLEX) as a preferred alternative investment. Flex's increasing involvement in switch tray and power components for GB200 systems, along with its gains in Google (NASDAQ:GOOGL) TPU server assembly, makes it a more attractive option in the current environment.

Super Micro stock dips as Barclays downgrades over limited visibility on AI margins

Super Micro Computer (NASDAQ:SMCI) shares were in focus on Wednesday as Barclays downgraded the IT company to Equal-Weight from Overweight, citing uncertainty around its AI margins and visibility on internal controls. Barclays analyst George Wang highlighted factors, such as "limited visibility on forward AI server gross margin trends, customer erosion, weaker competitive positioning, and higher working capital requirements," as reasons behind the ratings adjustment. The brokerage also cut its price target on the stock to $438 from $693 based on valuation at 12x estimated FY25 EPS. Wang is still positive on the server company's longer-term AI prospects and sees "room for improvement" in terms of internal controls and corporate governance. Last month, BofA downgraded Super Micro Computer's (SMCI) stock to Neutral from Buy following the company's fourth quarter results, noting that margins would remain pressured despite strong revenues. Q4 gross margin was much lower than expected (11.3% versus BofA's forecast of 13.6%) given customer mix (more hyperscale which has lower margin) and ramp costs related to liquid cooling. Super Micro (SMCI) shares were down 2.67% premarket on Wednesday and have fallen more than 27% over the past month. The recent downturn in shares has been triggered by two events: a disclosure by Hindenburg Research that it has short the company's stock and the announcement that the company will delay its annual report. On Tuesday, Super Micro (SMCI) CEO Charles Liang reassured stakeholders that the company's operations and production capabilities remain unaffected despite the short-seller report and delay in filing its annual report. As previously disclosed, the San Jose, California-based firm does not expect any "material changes" to its results for fiscal 2024 from the delay.