Earnings Report Preview | Market's Pessimistic Expectations Misaligned, Super Micro Computer Expected to Continue AI Comeback?

According to Zhitong Finance APP, artificial intelligence (AI) server manufacturer Super Micro Computer (SMCI.US) will release its fiscal year 2025 fourth-quarter earnings report after the U.S. stock market closes on August 5 (August 6 morning Beijing time). According to TipRanks forecast data, Wall Street analysts expect the company to report earnings per share of $0.45, a year-on-year decline of 29%; however, revenue is expected to grow by 13% year-on-year, reaching $5.98 billion.

Over the past year, Super Micro Computer's stock price has fluctuated due to changes in the market environment and the company's fundamentals, even facing delisting risks at one point due to financial concerns. However, with the boost from more new cooperation projects and the strategic layout of NVIDIA (NVDA.US) Blackwell architecture and AMD (AMD.US) new solutions expected to create opportunities for margin recovery, the company's stock price has continued to recover, with an increase of over 85% this year.

Looking ahead, as the potential market size continues to expand and AI-related revenue sources strengthen, management is expected to release optimistic performance guidance. In addition, current market expectations are significantly low, and the company is expected to exceed expectations in both revenue and profit in this earnings report.

Performance Review and Outlook

In the last quarter, Super Micro Computer's revenue reached $4.6 billion (a year-on-year increase of 19%, but 2.84% below expectations), mainly due to customers delaying orders during the transition from Hopper to Blackwell GPUs. Management has clearly stated that this demand will be deferred to Q4 and Q1 of fiscal year 2026, while the pressure on margins caused by inventory reserves will also ease simultaneously.

Looking ahead to the fourth fiscal quarter, Oakoff Investments believes there are three positive signals worth noting:

Surge in demand for liquid cooling solutions. This can be verified from the company's accelerated investment plans in Europe (official statement "responding to accelerated demand") to industry dynamics. On July 29, liquid cooling technology leader Accelsius announced that it has doubled its product line to meet the demand for large-scale AI infrastructure; Significant first-mover advantage in products. Super Micro Computer was the first to launch the B200 HGX/GB200 NVL72 system and will release new B300/GB300 products this summer. Combined with the $3.9 billion inventory announced in Q3 (81 days turnover), a peak in shipments is expected from Q4 to Q1 of 2026; Accelerated globalization layout. European market: More than 30 Blackwell architecture AI solutions will be launched by June 2025, with deployment cycles compressed from 12-18 months to 3 months; Middle East cooperation: A $20 billion multi-year agreement with Saudi DataVolt to provide ultra-dense GPU platforms for AI parks in the U.S., U.K., and Saudi Arabia; Technological innovation: The second-generation liquid cooling system (DLC-2) can improve energy efficiency and water efficiency by 40%, reducing total ownership costs by 30%.

According to Raymond James analyst Leopold, Super Micro Computer has captured 9% of the AI platform market share, with a market share of 31% in the branded server market, and the growth momentum is expected to continue Management Confidence and Market Expectations Misalignment

CEO Charles Liang clearly stated during the May earnings call: "We are confident in finishing the fiscal year with strong performance, expecting Q4 revenue to reach at least $6 billion." Based on this, the median annual revenue corresponds to approximately $5.98 billion for Q4 alone. However, current market expectations are 1.2% lower than management's guidance, which reflects a pessimistic sentiment that is clearly at odds with the strong fundamentals of the AI industry recently.

Oakoff Investments believes that the market has incorrectly extrapolated the short-term adjustment of Q3 into the future: positive factors such as global capacity expansion (strategic financing to be completed by June 2025), growth in order reserves, and significant collaborations have not been fully priced in, which instead creates conditions for earnings reports to exceed expectations.

Valuation Recovery Potential

After experiencing valuation compression by the end of 2024, Super Micro Computer's current forward EV/EBITDA of 16 times is still below historical levels. Based on the confirmed trend of margin recovery and accelerated order conversion, Oakoff Investments expects the valuation to at least recover to 25 times by the end of 2025.

Calculating based on the consensus upper limit of $3.25 EPS for the 2026 fiscal year, Oakoff Investments optimistically expects the target price to reach $81.25 (a 30% upside from the current price). Even using the lower limit of $1.97, a 25 times PE corresponds to $49.25 (21% lower than the current price), indicating that the current average target price of $45.38 on Wall Street may be overly conservative.

Divergence of Views on Wall Street

On the eve of the earnings report, Citigroup analyst Asiya Merchant raised the target price for Super Micro Computer from $37 to $52 but maintained a "neutral" rating.

The analyst believes that growth momentum will come from increased demand for AI servers and improved supply of NVIDIA's Blackwell GPUs, but also expressed concerns that intensified competition from Dell Technologies (DELL.US) and Hewlett Packard Enterprise (HPE.US) may squeeze profit margins.

Citigroup expects this quarter's revenue to be $6.07 billion (up 13.4% year-on-year, up 32% quarter-on-quarter), with earnings per share of $0.45, which is basically in line with market expectations; and predicts revenue of $7.02 billion and earnings per share of $0.65 for the first quarter of the 2026 fiscal year, both above market expectations.

In contrast, Bank of America Securities analyst Ruplu Bhattacharya initiated coverage with an "underperform" rating and a target price of $35, indicating nearly a 38% downside from the current stock price The reasons for the bearish outlook include declining profit margins, supply constraints on key components such as GPUs and liquid cooling systems, and intensified competition in the AI server market.

Over the past three months, 14 Wall Street analysts have given Super Micro Computer stock a consensus rating of "Moderate Buy," which includes 6 Buy, 6 Hold, and 2 Sell recommendations