Super Micro Computer Faces Challenges, Yet Business Remains Strong

As we look at early 2025, the excitement surrounding generative artificial intelligence (AI) hasn’t subsided. Companies are still investing billions to harness a technology that has the potential to change the landscape of the global economy.

In this competitive race for AI supremacy, hardware providers like Super Micro Computer (NASDAQ: SMCI) stand to gain. They operate under a picks-and-shovels model, supplying data-center equipment essential for developing and deploying consumer-oriented large language models (LLMs).

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Despite a booming business environment, Supermicro’s stock remains significantly below its all-time highs reached in 2024. This article explores what lies ahead for the company over the next year.

Significant Share Price Decline

Currently, Supermicro’s shares have plummeted over 70% from their peak of $118.82 in March 2024. Much of this decline stems from a report by short-seller Hindenburg Research, which alleged accounting irregularities and sanctions evasion in an unfavorable report released in August.

Following this report, Supermicro faced a series of setbacks. The company postponed its 2024 annual report and saw its auditor, Ernst & Young, resign due to concerns over the integrity of its financial statements. This situation raised the risk of delisting from the Nasdaq exchange, potentially harming liquidity and investor interest.

However, there have been positive developments. In November, Supermicro appointed BDO USA as its new auditor and proposed a plan to comply with Nasdaq’s regulations. Most notably, an internal December review revealed no evidence of managerial misconduct. By February, the company resumed its delayed filings, reinstating compliance and allowing investors to refocus on its operational strengths.

Robust Business Performance

With most regulatory issues seemingly resolved, Supermicro’s strong business momentum has been overlooked by investors amid the stock price drop. For context, management’s forecast for the second quarter estimates sales between $5.6 billion and $5.7 billion—a remarkable 54% year-over-year growth. This surge stems from surging demand for the company’s computer servers, which transform graphics processing units (GPUs) provided by partners like Nvidia and Advanced Micro Devices into functional server solutions for data centers. Supermicro’s focus on energy-efficient designs aligns well with the growing need for efficient processing capabilities needed for AI-heavy tasks.

Image source: Getty Images.

In the coming year, Supermicro is likely to benefit from the release of Nvidia’s advanced Blackwell-based AI chips, which promise significant performance enhancements. Despite this, Supermicro’s lower pricing power leads to a gross margin of around 12%, a stark contrast to Nvidia’s gross margin of 75%.

Tarriff Implications for Supermicro

Like many in the tech sector, Supermicro feels the impact of tariffs introduced on April 2 under Trump’s “Liberation Day.” Fortunately, the tariffs affecting Taiwan are not set to impact semiconductor chips, crucial to Supermicro’s supply chain and server production.

As a multinational corporation, Supermicro has a vast supply chain that may experience effects from these tariffs, though its foreign competitors are likely to face even greater challenges.

In February, the San Jose-based firm announced intentions to boost its U.S. manufacturing capabilities by constructing a new 300,000-square-foot facility. This facility is projected to expand to nearly 3 million square feet upon completion and may help mitigate the effects of ongoing trade uncertainties and onshoring policy changes expected beyond the current administration.

Despite Supermicro’s potential to outperform the market, the current stock environment is volatile. Investors may prefer to wait for more clarity before making further investments in Supermicro.

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Will Ebiefung is an investor in Super Micro Computer. The Motley Fool holds stock positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.