This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
Markets have a tendency to overreact. Look no further than the retailer of servers and liquid-cooled AI racks, Super Micro Computer (NASDAQ: SMCI), which has seen its shares rally ~40 percent so far this year - and that is after suffering a bruising ~30 percent correction in the interim.
Yet, on the broader canvas, SMCI's overall thesis remains unchanged: the company expects to earn $40 billion in full-year revenue in FY 2026 on the back of growing shipments of Blackwell-based products, and it was able to avoid a stock delisting at the proverbial last-minute by filing the requisite financial statements - which were withheld by the company as it examined its internal control systems in the wake of a damning report from Hindenburg Research in August 2024 - with the SEC in February. Nonetheless, heightened competition and a more vigorous internal control mechanism are expected to materially pressure Super Micro Computer's margins.
This brings us to the crux of the matter. Goldman Sachs analyst Michael Ng has now grown weary of Super Micro Computer's ~40 percent rally so far this year, one that has placed the stock at the apex of the hardware stocks covered by Goldman:
"SMCI stock is up 38% year-to-date, making it the best performing stock in our Hardware coverage; with the stock trading at 16X F2025E P/E, we view risk-reward as unfavorable given downside risks on valuation, competition, and gross margins."
The Goldman analyst cites three specific factors for his bearish turn:
- Increased competition as other firms ramp up their R&D spending, leading to decreasing product differentiation.
- Super Micro Computer's margins are expected to remain under pressure "in F2025/26/27 on increasing competition, the Blackwell product transition, and pressure from its largest customers & suppliers, exacerbated by SMCI's high-levels of customer and supplier concentration."
- The analyst expects "SMCI's valuation premium (12X NTM+1 P/E) to server OEM peers (e.g., DELL at 9x) to converge over time on lack of differentiation in AI server product & risks from customer & supplier concentration."
Accordingly, Michael Ng has now slashed the rating on Super Micro Computer shares to 'Sell' from 'Neutral,' and lowered the stock price target for the firm to $32 (which reflects 9x NTM+1Y EPS) vs. the previous peg at $40 (based on a 10x multiple).
Just last week, JP Morgan analyst Samit Chatterjee echoed a similar take on Super Micro Computer when he noted that the firm is likely to undergo "margin moderation in FY26 over FY25, which could limit EPS growth relative to revenue growth."
