Following its third-quarter earnings report, Super Micro Computer (NASDAQ:SMCI) saw its shares decline by approximately 14% to $738.30 on May 1st, despite reporting robust earnings. The San Jose-based company, known for its high-end servers catering to artificial intelligence (AI) applications, continues to grapple with supply chain challenges, particularly regarding new products requiring key components like Direct Liquid Cooling (DLC).
CEO Charles Liang, who co-founded Super Micro with his wife in 1993, expressed confidence in the company’s position in the AI revolution, highlighting continued strong demand for its AI-focused solutions. However, supply chain constraints persist, especially concerning DLC-related components, though Liang expects gradual improvement in the coming quarters.
Super Micro reported earnings of $6.65 per share, surpassing analyst expectations of $5.74 per share, with revenue reaching $3.85 billion, slightly below projections. Looking ahead, the company anticipates fourth-quarter earnings between $7.62 and $8.42 per share on revenue of $5.1 billion to $5.5 billion, with an upward revision of its 2024 revenue guidance to $14.7 billion to $15.1 billion.
Despite the positive outlook, investors reacted negatively, prompting analysts to revise their price targets for Super Micro. Barclay’s analyst George Wang raised the price target to $1,000, emphasizing the company’s strong position in AI and the expectation of sequential revenue growth in the next quarters.
Wedbush analyst Matt Bryson adjusted the price target to $800, noting the company’s accelerating sales momentum but expressing concerns about margin deterioration and competition’s impact on profitability.
Bank of America Securities lowered the price target to $1,090 while maintaining a buy rating, citing Super Micro’s dominance in AI server solutions. However, concerns about gross margin and inventory levels tempered the outlook.
Similarly, Wells Fargo analysts reduced the price target to $890, highlighting increased valuation sensitivity amid scrutiny over gross margin percentages.
Despite the stock’s decline, analysts remain bullish on Super Micro’s long-term prospects, driven by its leadership in the AI server market, though challenges in supply chain management and margin pressures warrant continued monitoring.
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