MW Super Micro's stock on its longest winning streak in months, despite many unknowns

By Therese Poletti

Wedbush warns of increased competition and gross margin pressures ahead of Tuesday's 'business update'

Super Micro Computer Inc. shares notched their longest winning streak in about six months ahead of a scheduled "business update" Tuesday. But one analyst just reminded investors that there are still "substantial unknowns" facing the maker of artificial-intelligence servers.

The company, which is facing a deadline to file delayed financial reports or risk potential delisting from the Nasdaq COMP, has seen its shares rise in the past five trading sessions, their longest winning streak since a five-session run that ended Aug. 16, 2024, according to Dow Jones Market Data. The stock jumped 17.6% on Monday.

But Wedbush Securities analyst Matthew Bryson still has hesitations. "We see substantial unknowns heading into [Super Micro's] $(SMCI)$ earnings call tomorrow, which leave us on the sidelines," he wrote in a note to clients on Monday, while sticking with a neutral rating.

The key questions for the company, he said, are how is it progressing with its delayed financials, whether it will meet Wall Street's sales expectations and whether it can see its margins stabilize.

Super Micro has until Feb. 25 to file its delayed annual report for fiscal 2024, which ended in June, as well as its quarterly report for September. In November, the company filed a compliance plan to the Nasdaq, seeking an extension to regain regulatory compliance.

Bryson also noted that he is beginning to see signs of more competition in the market for AI servers. Super Micro was one of the first companies to focus on that market, and in 2023 and 2024 its shares exploded, making it one of the most popular AI-related hardware names, alongside Nvidia Corp. $(NVDA)$.

Also read: Why Super Micro is mopping up the floor with the competition.

But Super Micro shares have been cut in half over the past year, largely reflecting concerns about the delayed filings and the resignation of auditor EY. That news alone sent its shares tumbling 33% one day in October. The company has since hired another auditor and said it does not expect to restate its financials.

"At the same time, until filings are completed, we believe risk that [Super Micro] cannot meet Nasdaq filing requirements should not be discounted," Bryson wrote.

Early last week, Super Micro said it would give investors a business update on its second quarter of fiscal 2025 and scheduled a conference call with Wall Street analysts. On its website, Super Micro lists its second-quarter results under "upcoming events."

Last week it also announced full production availability of servers running Nvidia's latest chip platform, Blackwell. After that news, its stock gained about 8% last Wednesday.

Wedbush, though, warned about the increased pressure on the already thin gross profit margins in the server business. "With Nvidia's (and other silicon vendors) push into system design limiting differentiation, we believe AI servers are arguably becoming more commoditized," Bryson wrote. "As such we tend to believe [gross margins for AI servers] will remain under pressure."

He also noted a recent Bloomberg report of a major $1 billion deal by Hewlett Packard Enterprise Co. $(HPE)$ to provide servers for xAI, Elon Musk's AI startup, a deal it won over Super Micro and Dell Technologies Inc. $(DELL)$.

-Therese Poletti

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 10, 2025 19:03 ET (00:03 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.