What Should Investors Know Ahead of SMCI's August 6 Earnings?

Analysts Notebook joined discussion · 3 hours ago

$Super Micro Computer(SMCI.US)$ will release its quarterly earnings after the market closes on next Tuesday, August 6th. Super Micro Computer stock has experienced a remarkable 136% increase year-to-date, driven by its strong position in the AI server market. Investors are now curious whether the demand for SMCI's products will continue in the upcoming June quarter (fiscal fourth quarter) report.

Here Are Key Expectations to Watch:

What Should Investors Know Ahead of SMCI's August 6 Earnings?

Analysts anticipate the company will report earnings of $7.83 per share for the quarter. Super Micro's customizable products and partnerships with top chip designers like $NVIDIA(NVDA.US)$ are fueling innovation. The company's new Malaysian facility aims to reduce costs and increase production, thereby boosting margins and net income. As more facilities become operational, Super Micro's growth potential looks promising, particularly with its direct liquid cooling technology. This cooling expertise is expected to drive growth as data centers adopt the solution. The Nvidia partnership showed strong performance in early 2024, adding to optimism. SMCI reported $3.85 billion in last quarterly sales and $402 million in net income, and its recent addition to the $NASDAQ 100 Index(.NDX.US)$ enhances its investor appeal.

SMCI recently dropped nearly 20% in one month in a tech selloff but has strong rebound potential, partly due to its upcoming earnings report on August 6. Similar to the recoveries seen by companies like $ServiceNow(NOW.US)$ after surpassing earnings estimates, SMCI might also bounce back. Super Micro's core business model is well-positioned to capitalize on growth driven by AI adoption among mega-cap tech companies. As long as these trends continue and other major players report strong earnings, Super Micro has the potential to significantly outperform in the long term.

Analysts' Take

According to MarketBeat.com, the company presently has a consensus rating of "Hold" and an average target price of $1,000.

• In a research report on Wednesday, July 10th, Nomura downgraded shares of Super Micro Computer from a "buy" rating to a "neutral" rating and set a $930 price target for the company. Additionally, Nomura Securities revised its rating for Super Micro Computer from "strong-buy" to "hold."

• Barclays analyst George Wang anticipates Super Micro Computer's revenue for the June quarter to be between $5.1-5.5 billion, aligning with the company's guidance. While an upside surprise for June is unlikely, Wang sees potential for future quarters, driven by the launch of new, low-competition products. He predicts a better-than-expected September quarter and strong revenue growth in FY25, supported by products for NVDA and AMD. Although a top-line beat for June is not expected, Wang suggests that gross margins could exceed expectations, with his analysis indicating that the 13.7% GM guidance might be conservative. The optimism is down to the higher margins of DLC (direct liquid-cooling) racks, as SlMCl designs key components for liquid-cooling systems in-house, enabling them to charge a premium.

SMCI plans to significantly increase its DLC market share in data centers, aiming for 15% within one year and 30% within two years, up from its current low single-digit percentage. George Wang expects a strong year for AI server deployment, driven by Tier 2 cloud providers, high-end enterprises like $Tesla(TSLA.US)$ and xAI, and sovereign AI projects. Wang rates SMCI stock as Overweight (Buy) with a $1,000 price target.

• SMCI stock rose this year largely due to its relationship with Nvidia, selling racks of Nvidia GPUs to data centers where demand has surged. However, this dependence on Nvidia is a double-edged sword. Although the stock reached nearly $1,200 per share in March, quarter-to-quarter sales growth slowed to 5%. After releasing these figures on April 30, the stock mostly traded sideways until a recent downturn, and the lack of a pre-announcement may be contributing to the bearish sentiment.

But lowered estimates might be easier to beat. While traders on Stocktwits have turned extremely bearish, analysts at TipRanks consider the stock a moderate buy.