On January 13, Goldman Sachs analyst Katherine Murphy began coverage of Super Micro Computer, Inc. (NASDAQ:SMCI) with a Sell rating. The firm set a 12-month price target of $26, down from a previous $34.
"We assume coverage of Super Micro Computer Inc (SMCI) with a Sell rating (unchanged) and a 12-month target price of $26 reflecting 9X NTM+1Y EPS (vs. $34 reflecting 11X prior)," Murphy stated in the report.
Analysts pointed to ongoing margin pressure and limited visibility on profitability as key reasons for the rating. This assessment comes even as they recognize SMCI's position as a leader in AI servers, particularly within tier 2 cloud and neocloud markets.
Murphy noted that while the company is expected to maintain its leadership in the medium term, clarity on future profit levels remains low. The report highlighted that margin-dilutive deals have already reduced the company's margin to 9.5% over the last three years, a level anticipated to persist in the near term.
"These concerns around profitability have weighed on consensus estimates, but we think there could still be further downside to margins, ultimately limiting visibility into SMCI's forward earnings," the analyst added.
The firm suggested that major stock gains this year may be hindered by these large, margin-dilutive deals, increasing competition from other manufacturers, and costs associated with scaling its enterprise business.
Super Micro Computer designs and manufactures server and storage solutions for data centers, cloud computing, AI, and edge computing applications worldwide.