Supermicro (SMCI) stock fell more than 7% in early trading Wednesday after the AI server maker reported lower-than-expected sales and profits. The company reported first-quarter sales of $5.02 billion, down from $5.94 billion in the year-ago period and lower than the $6.09 billion expected by Wall Street experts. Supermicro’s adjusted earnings per share of $0.35 also fell short of analysts’ expectations of $0.41.
Before the earnings call, Supermicro raised its full-year sales forecast to $36 billion from $33 billion, with executives citing a recent “major deal” in NVIDIA servers. While this excited some investors, others were wary of Supermicro’s focus on participating in larger deals rather than maintaining solid profit margins.
“The robust demand for the AI server/computing space continues to surprise us,” JPMorgan analyst Samik Chatterjee wrote in a note to investors on Wednesday. “However, the revenue opportunities are dramatically different from those in the AI computing space, with AI server leaders continuing to sacrifice margins to participate in large-scale deals, and the upside that investors revel in from the opportunities is limited.”
Additionally, increasing competition in the artificial intelligence server market also raises questions about Super Micro’s long-term stock profitability. Stock prices have been volatile throughout the past year. The stock is up 45% since the beginning of the year, but is down 9% on the day. At the time of writing, SCMI is trading with extreme volatility, trading in the middle of its 52-week moving average. While Goldman Sachs continues to take a bearish view and maintain a sell rating, analysts generally see SMCI’s potential with most price targets above the current market price of $47.40.
