Can Super Micro's AI Demand Outpace Profit Margin Fears?

Super Micro Computer (NASDAQ:SMCI) is navigating a complex market landscape as it prepares to report its fiscal fourth-quarter earnings with a significant long-term growth narrative in the AI server space tempered by immediate concerns about market visibility and sustained pressure on profit margins.

The company’s heavy reliance on key suppliers and a competitive environment, where large-scale deals and component costs weigh on profitability, creates a cautious outlook despite its strong position as a leading beneficiary of rising AI infrastructure spending.

Analyst Matt Bryson of Wedbush, in a note released on Monday, reiterated a Neutral rating on Super Micro with a $30 price forecast ahead of the company’s earnings report scheduled for August 5.

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While the analyst acknowledged Super Micro’s positioning as a key beneficiary of accelerating AI infrastructure spend, particularly in the server market, he expressed caution over near-term visibility and uncertainty around actual demand strength.

Bryson noted that Super Micro stands to benefit from secular trends that align with its core strengths. Spending from neocloud providers, AI model builders, and sovereign buyers continues to grow, and these customers are increasingly turning to OEMs like Super Micro and Dell Technologies (NYSE:DELL) to meet their AI server requirements.

He added that Nvidia’s (NASDAQ:NVDA) apparent prioritization of GB200 deliveries to OEMs, rather than directly to hyperscalers, could serve as a tailwind for Super Micro. Peer company Gigabyte, for example, recently reported a 50% quarter-over-quarter sales surge, a result Bryson attributed to increased AI server shipments.

If current market dynamics hold, Bryson sees a long-term path for Super Micro to potentially reach $10 billion in quarterly sales, echoing targets previously laid out by Super Micro CEO Charles Liang. This would be a significant leap from the $5.9 billion revenue consensus for fiscal fourth quarter and the $6.4 billion projection for calendar first quarter.

However, Bryson underscored that visibility into Super Micro’s actual build and demand trends remains limited. The company’s heavy reliance on related parties for component sourcing and manufacturing complicates tracking real-time activity.

Additionally, data from third-party sources has yet to reflect the level of demand surge expected from recent AI server trends. While strength in Taiwan-based suppliers like Wistron suggests a robust upstream environment, Bryson’s team has not been able to confirm that Super Micro is directly seeing similar momentum in its own sales funnel.

Margins also remain a key concern. Gross margins are expected to stay under pressure in the near term due to an increasing share of Nvidia (NASDAQ:NVDA) content in Super Micro’s bill of materials. According to conversations with ODMs and OEMs, GB200-based designs leave little room for differentiation, further compressing vendor margins.

Management has guided fiscal fourth-quarter gross margins to remain around 10%, roughly in line with the 9.7% margin reported in the previous quarter. The analyst characterized this conservatism as prudent, citing the lower-margin profile of large-scale deals, rising Nvidia component costs, and a lack of meaningful relief in memory pricing.

For the fiscal fourth quarter, Super Micro management projected revenue in the range of $5.6 billion to $6.4 billion and adjusted earnings per share between 40 cents and 50 cents.

Operating expenses are expected to reach $245 million, with an adjusted tax rate of 16.5%. The fully diluted share count is projected at 642 million, and capital expenditures are guided between $45 million and $55 million. Despite Super Micro’s significant share price appreciation over the past few months, Bryson remains on the sidelines.

Price Action: SMCI shares were trading higher by 3.88% to $58.84 at last check Monday.

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