Super Micro Computer (SMCI), a leading provider of high-performance computing and AI infrastructure solutions, has seen its stock price experience considerable volatility recently. The company’s stock dropped sharply in January 2024, and the decline accelerated after it was included in the S&P 500 index (SPX). While a market correction was expected, the extent of the drop seems overdone, particularly in light of the company’s impressive recent earnings guidance. Despite the downward trend, there are compelling reasons to remain optimistic about Super Micro’s future, especially given its current low valuation and promising catalysts on the horizon.
Earnings Analysis: A Strong Finish to Fiscal Year 2024
Super Micro closed its fiscal year 2024 with impressive sales figures and a bright outlook for the future. The company reported quarterly revenue of $5.31 billion, a substantial increase from the $2.18 billion reported in the same period last year—marking a 143% year-over-year surge. Additionally, net income rose by 82% to $353 million, underscoring the company’s strong financial performance.
Despite these positive results, investor anxiety remains, primarily due to concerns over narrowing profit margins. For context, Super Micro’s net income for Q3 of fiscal year 2024 was $402 million, representing a 12% decline compared to the previous quarter. At the same time, the company reported $3.85 billion in revenue for Q3, which then surged by 38% quarter-on-quarter in Q4.
Expectations for fiscal year 2025 suggest further compression in profit margins, which has contributed to the stock’s excessive selling pressure. Even a recent 10-for-1 stock split failed to reassure investors, who have continued to offload shares.
However, this reaction appears disconnected from the company’s projected growth. Super Micro anticipates revenue between $26 billion and $30 billion for fiscal year 2025, up from $14.94 billion in fiscal year 2024. This guidance implies the potential for revenue to more than double year-over-year at the upper end of the forecast, especially considering the company’s history of exceeding revenue expectations.
While Super Micro did not provide net income guidance, year-over-year growth is expected to persist. The key question remains the extent of this growth. Even if net income growth slows to 30-50%, the long-term investment potential remains attractive.
Margin Growth Potential: A Long-Term Play
Super Micro is steadfast in its goal to become the world’s leading IT infrastructure company and is making significant strides toward this objective. As the AI boom continues, Super Micro is strategically pricing its offerings competitively to capture market share.
The company’s current strategy involves trading higher short-term profits for greater revenue growth. CEO Charles Liang aims to address the margin concerns by the end of fiscal year 2025. For long-term investors, this margin issue should not be a deterrent, as the company’s growth trajectory and market position remain strong. Holding onto Super Micro stock could prove rewarding for those willing to weather short-term fluctuations in favor of long-term gains.
