Super Micro Remains A 'Show-Me Story' As Analysts Weigh AI Growth Against Execution Risks

Core Viewpoint - BofA Securities analyst Ruplu Bhattacharya initiated coverage on Super Micro Computer (SMCI) with an Underperform rating and a price target of $35, indicating a potential downside of approximately 29% due to rising competition and margin pressures in the AI server market [1][5]. Group 1: Competitive Landscape - Super Micro faces increasing competition in the AI server and rack market, particularly from Dell Technologies and Hewlett-Packard Enterprise, which have a competitive edge with enterprise clients [3]. - The analyst noted that limited access to key components such as GPUs and liquid cooling systems could hinder Super Micro's revenue growth [2]. - Bhattacharya highlighted that liquid cooling technology may become commoditized over time, potentially diminishing Super Micro's current manufacturing advantage [3]. Group 2: Financial Projections - The price target of $35 is based on a 13x multiple of the estimated 2026 EPS of $2.67, reflecting a projected 13% compound annual net income growth from fiscal 2024 to 2027 [5]. - For the upcoming fourth quarter, revenue is forecasted at $5.94 billion with an adjusted EPS of 73 cents [9]. Group 3: Market Position and Valuation - Despite strong AI server revenue growth, Super Micro is viewed as a "show-me" story due to past volatility and execution risks, leading to a higher multiple of 13x compared to the 9x median for OEM peers [6][7]. - Bhattacharya modeled Super Micro's operating margins to be slightly below those of North American EMS and Asian ODM peers, with expectations that this gap will widen as competition intensifies [8].