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Super Micro Computer (SMCI), also known as Supermicro, had a roller coaster year in 2024 due to delays in financial reporting. Its auditor, EY, resigned in October 2024, citing issues with internal controls and accounting practices. This departure raised concerns about the company’s financial transparency and governance, resulting in a significant drop in its stock price. However, the company addressed the issues by hiring BDO Global as its new auditor.
On Feb. 25, Super Micro Computer successfully filed its delayed financial statements for fiscal year 2024 and the first two quarters of its fiscal 2025. meeting the deadline set by the Nasdaq Exchange. SMCI stock has risen 33% in the year to date, outpacing the tech-heavy Nasdaq Composite Index ($NASX).
For now, concerns about immediate delisting have been alleviated. But does this mean the stock is a buy? Let’s find out.
Delisting Fears Have Eased, Yet Challenges Remain
Supermicro specializes in high-performance server technology and provides a wide range of products, including server systems, storage solutions, and management software fulfilling the needs of data centers, cloud computing, artificial intelligence (AI), and edge computing. Its emphasis on energy efficiency and customization has contributed to its rapid expansion. In the second quarter of fiscal 2025, the company reported a 180.1% increase in revenue to $5.9 million, exceeding its projected range due to high demand for AI solutions. Adjusted earnings increased 148% to $0.67 per share.
The company revised its fiscal 2025 revenue guidance to between $23.5 billion and $25 billion while setting a lofty $40 billion revenue target for fiscal 2026. Meanwhile, analysts predict fiscal 2025 revenue of around $23.9 billion, with revenue reaching $33 billion in fiscal 2026. Earnings could rise by 17.2% in fiscal 2025, followed by 44.9% in fiscal 2026.
While the company has alleviated delisting concerns, other challenges may still affect the stock. Investor sentiment appears to have been influenced by recent insider transactions. Following the company’s return to Nasdaq compliance, two of its officers, Sara Liu and George Kao, filed to sell shares worth $2.3 million and $3.6 million, respectively. While they stated that there is no undisclosed negative information about the company’s operations, such insider sales frequently raise concerns about the company’s future prospects and can have an impact on stock performance.
Furthermore, the company announced in December that it intends to hire a new CFO, but there have been no recent developments in this regard. A major shakeup in the C-suite typically has a negative impact on the stock.
Furthermore, despite the lower revenue guidance for fiscal 2025, the $40 billion revenue target for fiscal 2026 appears ambitious in an extremely competitive AI market. In the Q2 earnings call, Super Micro laid out its strategy for achieving this goal, which includes expanding production capacity and engaging new customers. Recently, the company revealed expansion plans for a third campus in Silicon Valley, estimating that around 30% of new data centers will use liquid cooling solutions. Nonetheless, Super Micro is facing a lot of skepticism and external headwinds that might impede its growth strategy.
What Are Analysts Saying Now About SMCI Stock?
Despite recent developments, analysts remain skeptical about Supermicro’s prospects. Many analysts believe the $40 billion revenue target is overly ambitious given increased competition and supply chain uncertainties. Mizuho Securities analyst Vijay Rakesh initiated a “Hold” rating for the stock with a price target of $50. Separately, Loop Capital reiterated its “Buy” rating for the stock and raised the price target to $70.
On Wall Street, SMCI stock has a consensus rating of “Hold.” Of the 13 analysts who cover the stock, two rate it as a “Strong Buy,” two as a “Moderate Buy,” seven as a “Hold,” and two as a “Strong Sell.” The stock’s average price target of $57.11 indicates a 40% increase from current levels. Meanwhile, the Street-high estimate of $100 suggests a potential 150% jump over the next 12 months.
The Verdict: Is SMCI Stock a Buy Now?
Super Micro’s recent Nasdaq compliance status and strong financial performance in the AI infrastructure market are positive developments. Nonetheless, its history of financial reporting issues, aggressive revenue projections, insider stock sales, and a highly competitive environment pose significant risks. There are more reasons to avoid this stock than to buy it.
For the time being, I believe it is better to steer clear of SMCI stock until there is a better picture of its future.
