Super Micro sinks as it continues to deal with low gross margins

Super Micro Computer (NASDAQ:SMCI) sank more than 15% during early trading Wednesday as the data storage and server solutions company failed to reach fourth quarter estimates and continues to suffer from low gross margins.

Its outlook for the first quarter of fiscal 2026 also fell short of market expectations.

“Gross margins were below expectations in F4Q, and F1Q25 guidance was set at ‘similar to F4Q25’ at 9.6%,” said KeyBanc analysts Brandon Nispel and Matt Sbriglio in an investor note. “While we appreciate SMCI is likely experiencing tariff and inventory reserve pressure, where underlying gross margins could be higher due to better execution/ramping DCBBS, at this point, we see greater competitive/structural challenges in returning to gross margin growth. We maintain that gross margins are likely to be under pressure in the NT, where a ramp toward SMCI’s LT guide of 15-17% is unlikely in FY26, in our view.”

KeyBanc acknowledged Super Micro’s revenue ramp later in the fiscal year, as the company expects full-year fiscal 2026 revenue to top $33B.

“We struggle with conviction in attaining these projections given the recent revenue trajectory and lack of supporting data points,” Nispel said. “That said, we expect revenue growth to accelerate … Servers should be the fastest growing sub-sector of IT Hardware and SMCI now has issues with: 1) 10-K filing delays impact on customer demand; and 2) incremental capital to ramp capacity where we could underappreciate the ramp.”

KeyBanc maintained its Sector Weight and $45 price target on the stock.

Meanwhile, Mizuho increased its price target to $50 from $47 and reiterated its Neutral rating.

“We believe SMCI remains a key AI server supplier with strong share and DLC shipments, but seeing increasing competition and pricing as near-term headwinds,” said Mizuho analyst Vijay Rakesh in an investor note.

J.P. Morgan reiterated its Neutral rating as well but slightly lowered its price target to $45 from $46. The bank noted that Super Micro has launched its Data Center Building Block Solutions, “where the company acts as an installation/integration partner promising fastest time-to-market and time-to-online (deploying as quickly as in three months), with services spanning across designing data center layouts and network topologies, and sourcing and deploying critical infrastructure including and beyond IT equipment.” It is also on track to add six to eight larger-scale data center customers.

“Despite the positives, the constraints around customer readiness are leading us to moderate our revenue outlook for FY26 to $33 bn (vs. $36 bn prior); our updated EPS forecasts are for $2.40/$3.05/$3.60 (vs. $2.70/$3.50/$4.15 prior) for FY26/27/28 respectively,” said J.P. Morgan analysts, led by Samik Chatterjee, in a note.

“Gross margin fell again to 9.5%, profits are well below last year, and EPS is still miles away from what it used to be, and that’s during the AI boom,” said Seeking Alpha analyst Julian Ostian.

“Competition will push margins lower, as the winner here will need to race to the bottom the fastest regarding price,” added Seeking Alpha analyst Brett Ashcroft Green.

Competitors in the server market, such as Dell (DELL) and Hewlett Packard Enterprise (HPE) were down 3% and 1.5%, respectively.