Bank of America analysts on Wednesday downgraded shares of Super Micro Computer (NASDAQ:) to Neutral from Buy after the company reported worse-than-expected margins for the fiscal fourth quarter.
Despite Q4 revenue being in line with the firm’s and street estimates, the gross margin came in at 11.3%, significantly lower than the expected 13.6%.
SMCI shares fell more than 13% in premarket trading.
The data center company’s revenue guidance for the first quarter of fiscal 2025 is higher than expected. Revenue for the full fiscal 2025 of $28 billion is also above consensus estimates of $23.8 billion
However, analysts pointed out that Super Micro’s gross margin is expected to gradually return to its normal range of 14-17% by the end of fiscal 2025. This recovery is contingent on improvements in manufacturing efficiencies, a better customer mix, and the introduction of new platforms.
“While the l-t benefit from AI remains intact, we move to a Neutral rating, from Buy, as we see the next several quarters remaining margin challenged as SMCI navigates a competitive pricing environment, delayed shipment of Blackwell GPU systems that require liquid cooled racks (higher margin), and on-going issues with component availability,” analysts wrote.
Reflecting these concerns, they also adjusted its price objective for Super Micro Computer to $700 from the previous $1090. The adjustment in valuation aligns with the broader sector trend, where valuation multiples have notably decreased.
For the quarter ending June 30, the company, which includes Nvidia as a customer for its servers, reported adjusted earnings of $6.25 per share on revenue of $5.31 billion. This fell short of expectations, who had predicted earnings of $8.10 per share on the same revenue.
