The AI server market is getting more competitive - with less differentiation or room for pricing power.

There are several reasons to be cautious about Super Micro Computer Inc.'s stock right now, according to Goldman Sachs analysts, who downgraded the stock to a sell rating on Monday while warning that the company could eventually lose its edge in the artificial-intelligence server market.

Analysts led by Michael Ng made the call on Super Micro - noting that while the stock has seen big gains so far this year, it may see declines from here, owing in part to increased competition, pressure on its already low gross margins and reduced product differentiation in AI servers.

"Competition from both OEM [original equipment manufacturer] and ODM [original device manufacturer] suppliers has intensified, likelyleading to less differentiation and greater pricing pressure," Ng wrote in a note to clients.

Goldman now has a 12-month price target of $32 on Super Micro shares, down from $40 before. The new target is about 24% below current levels.

The analyst noted that revenue for Dell Technologies Inc.'s $(DELL)$ AI server business grew to $9 billion in calendar 2024, up from $2 billion in 2023, and Dell is guiding to over $15 billion for calendar 2025. In addition, Hewlett Packard Enterprise Co. $(HPE)$ reportedly booked a $1 billion contract from social-media platofrm X for its AI-focused servers.

"The risks from increased competition are heightened given that two of Super Micro's customers made up a combined 58% of revenue last quarter," Ng added.

Super Micro shares slipped 1% on Monday.

Ng's concerns echo similar ones voiced last week by a J.P. Morgan analyst, though Ng brought additional worries about the company's future gross margins.

Super Micro's gross profit margins peaked in fiscal 2023 at around 18%, Goldman noted, and they were 13.9% in fiscal 2024. Ng forecasts they will continue their downward trajectory, declining to 12% in fiscal 2025 and perhaps reaching 11% in fiscal 2029.

Given the rising supply of AI servers, Super Micro "has called out margin pressure from competitive pricing," Ng said in his report. He noted that margins have been impacted by the transition from Nvidia Corp.'s Hopper platform to its newest Blackwell line, which was initially delayed.

Ng is also skeptical that Super Micro will hit its forecast for revenue of $40 billion in fiscal 2026. His estimate is for $32 billion, "reflecting our expectation for increased competition."