MW J.P. Morgan has concerns about Super Micro, but upgrades the stock anyway

By Therese Poletti

Server maker on the cusp of a big revenue surge thanks to Nvidia's Blackwell line

Shares of Super Micro Computer Inc. were popping in morning trading, after J.P. Morgan upgraded the stock despite noting concerns about more competition and margins for the AI server maker.

Super Micro's stock $(SMCI)$ was up nearly 4% to $40.59 after J.P. Morgan analysts, led by Samik Chatterjee, upgraded the company to neutral from underweight, noting that it was "on the cusp of benefiting" from new servers equipped with Nvidia Corp.'s $(NVDA)$ latest Blackwell platform.

Chatterjee said in a note to clients that Super Micro was already seeing materially higher demand than the prior generation of Nvidia's Grace/Hopper family, with additional benefit to revenue growth from higher average selling prices. At Nvidia's big developer conference this past week in San Jose, Chief Executive Jensen Huang said the Blackwell line was in full-volume production.

J.P. Morgan also raised earnings estimates on Super Micro for fiscal 2026, ending in June, raising the full-year revenue forecast to $39 billion, up from $34 billion previously, with revenue growth of 65% year-over-year.

The analysts are also raising earnings per share estimates to $3.70 a share, up from $3.25 previously, but slightly lowering the forecast for gross margins to 11.1% of revenue, down from 11.2%.

Those gross margins are thin compared with Nvidia's gross margins - which are in the 70% range - but they have been an ongoing issue for Super Micro, and could possibly moderate even further as competition in the AI-server market gets more intense.

"We are cautious relative to gross margins given the increasingly competitive landscape and expect gross margin moderation in fiscal year 2026 over fiscal year 2025, which is expected to translate to operating margin moderation as well, and limit magnitude of earnings per share growth relative to revenue growth in fiscal 2026," Chatterjee wrote.

Other overhangs for the stock include the potential hiring of a new chief financial officer to replace current CFO David Weigand, who will eventually be stepping down after the company was late in filing its financial statements with regulators last year. Super Micro said it would replace Weigand but so far no one has been named.

Read also: Super Micro submits overdue filings. What's next for the server maker.

It also said last December that an investigation into its internal controls didn't find any fraud. The company's auditor, E&Y had abruptly resigned last year, saying it could no longer rely on management's statements. Super Micro was also under threat of being delisted from the Nasdaq. The company is also still being investigated by the Justice Department and is fighting several shareholder lawsuits.

Also tempering J.P. Morgan's positive view on the stock is the likelihood that Super Micro will see higher expenses to implement better internal controls, as well as higher interest expenses if it embarks on future potential capital raises.

So far this year, Super Micro's stock is up about 33%, but it has fallen off its high from the past few months, when it reached around $66 in February, ahead of the deadline to get back into regulatory compliance.

-Therese Poletti

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March 21, 2025 11:21 ET (15:21 GMT)

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