Super Micro Computer (SMCI) Plunges 11.5% After Cutting Fiscal 3Q Revenue Guidance

Super Micro, a leading manufacturer of artificial intelligence servers, has dramatically reduced its third-quarter revenue guidance, setting an outlook that deeply misses analyst expectations.

The company now anticipates adjusted earnings per share (EPS) of $0.29 to $0.31 on revenue between $4.5 billion and $4.6 billion for the fiscal third quarter.

Earlier this month, the company had projected adjusted EPS of $0.46 to $0.62 on revenue of $5 billion to $6 billion.

The stock plunged 11.5% in response to the announcement.

Super Micro’s shares are down about 74% from their early 2024 peak, and its market capitalization has tumbled to roughly $18 billion. This gives the stock a price-to-sales ratio below 1 based on analyst estimates for fiscal 2025 sales.

The company’s stock price performance has also been lackluster, with a 32% decline year-to-date.

Customer Delays Weigh on Q3 Revenue

In its preliminary earnings report, Super Micro disclosed that some customers delayed purchasing decisions during the third quarter, pushing sales back into the fourth quarter.

As a result, the company's revenue outlook falls short of the average analyst estimates of $5.1 billion, while the adjusted EPS outlook of $0.39 is also lower than the consensus estimate of $0.44, according to data from FactSet.

Customer delays are expected to lower gross margin by approximately 220 basis points compared to the second quarter. This reduction is attributed to higher inventory reserves and costs related to expediting new products.

Essentially, Super Micro is writing off inventory that will either never sell or will sell at a substantial discount. This has raised red flags among investors about potential oversupply issues.

On a positive note, Super Micro claims that design wins for newer products remain "robust," although the company did not provide specific numbers.

The timing of this announcement is particularly troubling as Super Micro had only recently regained compliance with the Nasdaq exchange. The company had previously delayed filing its annual 10-K report last year due to internal control issues.

Signs of AI Market Cooling

Super Micro’s disappointing results arrive amid growing concerns about the AI infrastructure market. Several signs suggest that the red-hot demand for AI servers could be cooling.

In China, reports indicate an oversupply of AI computing capacity following a building boom. Meanwhile, DeepSeek’s efficient AI models, which require fewer computing resources, have raised questions about future capacity needs.

There are also reports that tech giants like Microsoft and Amazon are pulling back on some data center leases. While both companies continue to expand their AI computing capacity, economic uncertainty may be causing them to become more cautious about spending.

Some analysts speculate that Super Micro’s guidance miss might be driven by customers shifting from Nvidia’s Hopper to Blackwell during the quarter.

Barclays analyst George Wang slashed his price target for Super Micro stock to $34 from $59 while maintaining a Hold rating.

Wang suggested that Super Micro’s previous outlook was too optimistic. He also pointed to substantial uncertainty around AI server builds, with limited visibility into calendar year 2025 as customers undergo product transitions.

The company’s high dependence on customers like xAI and Coreweave makes it vulnerable to quarter-to-quarter volatility, and there is potential for share loss to Asian original design manufacturers.

Not all analysts are pessimistic, though. Northland Securities analyst Nehal Chokshi maintained a Buy rating with a $70 price target. Chokshi believes Super Micro’s statement about robust new generation product design wins indicates that the company’s Q4 FY25 and FY26 estimates are “correctly calibrated.”

Wall Street remains divided on Super Micro’s prospects. The stock currently has a Hold consensus rating based on four Buys, five Holds, and two Sell recommendations. The average price target of $43 implies 35% upside potential from current levels.

Investors will be closely watching Super Micro’s full earnings report on May 6. Management’s commentary should provide greater clarity on the company’s performance and the demand outlook for AI servers.