2024-06-05 20:00:00 ET
Summary
- Super Micro is facing margin pressures in the highly competitive AI server market, with Dell as a major competitor.
- Gross margins are expected to decline below the targeted 14% to 17% range, despite booming AI-optimized server demand.
- Super Micro's limited profits and margin pressures could become a significant issue, especially if gross margins dip further.
- The stock isn't relatively expensive, but a break below $750 would be a major warning sign.
The weak Dell Technologies Inc. ( DELL ) earnings were a huge red flag for Super Micro ( SMCI ). The company has ridden the wave for AI server infrastructure demand, but the market is highly competitive with limited margins. My investment thesis is still Neutral on the stock due to relative valuation, but investors should watch out for a downturn, especially if the recent trading around $750 doesn't hold....
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Super Micro: Likely Dead In The Water, At Best