After J.P. Morgan upgraded the stock while expressing issues about more competition and margins for the AI server maker, Super Micro Computer Inc.’s shares were flying in early trading.
Following J.P. Morgan analysts led by Samik Chatterjee, who upgraded Super Micro to neutral from underweight, stating that it was “on the cusp of benefiting” from new servers outfitted with Nvidia Corp.’s (NVDA), Super Micro’s shares (SMCI) was up nearly 4% to $40.59.
With extra advantage to revenue growth from higher average selling prices, Chatterjee noted in a letter to clients that Super Micro was already seeing noticeably more demand than the previous generation of Nvidia’s Grace/Hopper family. Chief Executive Jensen Huang stated the Blackwell line was in full-volume manufacturing at Nvidia’s large developer conference this past week in San Jose.
With revenue increase of 65% year-over-year, J.P. Morgan has raised earnings expectations for Super Micro for fiscal 2026, ending in June, so increasing the full-year revenue forecast to $39 billion, up from $34 billion previously.
While somewhat decreasing the expectation for gross margins to 11.1% of revenue, down from 11.2%, the analysts are also lifting earnings per share estimates to $3.70 a share, up from $3.25 previously.
Though they are thin when compared to Nvidia’s gross margins, which fall in the 70% area, Super Micro has always struggled with these margins; as competition in the AI-server market gets more fierce, they could perhaps moderate even more.
“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 degree of earnings per share growth relative to revenue growth in fiscal 2026,” Chatterjee said.
Other overhangs for the stock include the possible appointment of a new chief financial officer to replace David Weigand, the present CFO who will finally be leaving the company following last year’s late filing of its financial results with regulators. Super Micro declared it will replace Weigand, however as of yet no one has been identified.
Last December, it also claimed, based on an internal control review, no evidence of fraud. E&Y, the company’s auditor, left suddenly last year claiming it could not depend on management’s words. Super Micro also faced danger from being dropped from the Nasdaq. The Justice Department is still looking into the business as well, and it is defending multiple shareholder lawsuits.
Furthermore undermining J.P. Morgan’s optimistic assessment of the company is the possibility that Super Micro will have more expenses to apply improved internal controls and more interest charges should it start future possible capital projects.
Super Micro’s stock is up over 33% so far this year, although it has dropped off from its peak during the past three months when it reached roughly $66 in February, ahead of the deadline to get back into regulatory compliance.
