Super Micro Computer, Inc. SMCI jumped 12.2% on Wednesday after filing its long-delayed financial reports, successfully avoiding Nasdaq delisting just before the Feb. 25 deadline. The company’s fiscal 2024 annual report and first two quarters of fiscal 2025 filings removed a major overhang that had weighed on the stock for months.

While this regulatory clarity triggered a relief rally, serious risks remain, and investors should take profits before another downturn.

Regulatory and Legal Risks Still Loom Large on SMCI

Although Super Micro Computer is now compliant with Nasdaq listing rules, the company remains under investigation by the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) over its accounting practices and governance issues. These unresolved legal matters present a significant overhang, as regulatory scrutiny could lead to further financial or operational disruptions.

Adding to concerns, the new auditor, BDO USA, approved the financials but flagged material weaknesses in internal controls. This raises red flags about potential future reporting issues, which could reignite investor uncertainty and lead to additional stock volatility.

The company’s troubles began in August 2024 when Hindenburg Research accused Super Micro Computer of financial misrepresentation. Shortly after, Ernst & Young resigned as its auditor, citing governance and transparency concerns. While an independent committee found no substantial wrongdoing, the fact that federal investigations remain ongoing suggests the story isn’t over.

SMCI’s Slowing Growth Raises Concerns About Long-Term Upside

Super Micro Computer has been a clear AI beneficiary, with fiscal 2024 revenues more than doubling to $14.99 billion. However, the company’s fiscal 2025 guidance tells a different story.

On Feb. 11, Super Micro Computer cut its revenue outlook for fiscal 2025 to the $23.5-$25 billion band, down from its previous projection of $26-$30 billion. The revised guidance range indicates a year-over-year growth of 56.8%-66.8%. This downward revision signals slowing momentum, even as AI-driven demand remains strong.

CEO Charles Liang admitted that delays in filing its 10-K had negatively impacted business and cash flow, leading to a noticeable slowdown in growth over the past two quarters. If Super Micro Computer fails to regain its previous growth trajectory, it will be difficult for the company to achieve the fiscal 2026 revenue target of $40 billion.

Analysts are also skeptical about the company’s fiscal 2026 revenue forecast. The Zacks Consensus Estimate for fiscal 2026 top line is currently pegged at $33.04 billion. Even the high end of the estimate range of $34.77 billion is significantly lower than SMCI’s revenue forecast for fiscal 2026.

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Mounting Competitive Pressures for SMCI

While Super Micro Computer has benefited from its close ties with Nvidia Corporation NVDA, it faces increasing competition from major players like Dell Technologies Inc. DELL and Hewlett Packard Enterprise Company HPE, both of which are aggressively expanding their AI server capabilities.

Unlike Super Micro Computer, these companies have long-established enterprise relationships, global supply chains and significantly larger research & development budgets, allowing them to scale AI infrastructure offerings more efficiently.

Dell Technologies and Hewlett Packard Enterprise are deepening collaborations with Nvidia to offer customized AI-optimized solutions, potentially taking market share from Super Micro Computer. Additionally, their broader product portfolios give them pricing flexibility, making it harder for Super Micro to maintain its high-margin AI server business. As competition intensifies, Super Micro Computer’s pricing power and revenue growth could come under pressure, leading to slower market expansion and increased volatility for its stock.

Overvaluation Limits Near-Term Upside for SMCI

Despite ongoing risks, Super Micro Computer stock has surged 67.7% YTD, pushing its valuation to elevated levels. SMCI currently trades at a forward 12-month P/E of 17.92, higher than the Zacks Computer – Storage Devices industry average of 16.37.

Forward 12-Month P/E Ratio

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Super Micro Computer’s P/E ratio is also way higher than its major competitors in the server market, including Dell Technologies and Hewlett Packard Enterprise. Currently, the forward 12-month P/E ratio of Dell Technologies and Hewlett Packard Enterprise are 12.61 and 9.45, respectively.

While the stock’s premium valuation reflects its strong AI positioning, it also leaves little room for error. With legal risks, governance concerns and doubt over achieving fiscal 2026 ambitious revenue targets, SMCI’s risk-reward profile looks unfavorable at current levels.

YTD Price return Performance

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Conclusion: Sell SMCI Stock for Now

Super Micro Computer’s regulatory compliance filing removed a major short-term risk, but the bigger picture remains concerning. The company still faces DOJ and SEC investigations, material weaknesses in financial controls and increased competitive threats.

With slowing revenue growth and an expensive valuation, the stock’s upside appears limited in the near term. Investors should consider exiting from this Zacks Rank #4 (Sell) company now and locking in gains before the next potential downturn.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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