After Super Micro's fiscal third quarter earnings report yesterday, investment bank JPMorgan reduced the firm's share price target and kept a Neutral rating on the stock. Super Micro's cloudy outlook for the ongoing quarter and the full year has weighed down on its stock. Since trading opened today, the shares have lost 5%, and they are up by 3.9% year-to-date after having struggled amidst broader investor pessimism about AI and global trade tensions. The shares have lost 48% since their peak in February, after less-than-stellar earnings from NVIDIA have weighed on the stock.
JPMorgan Notes Lack Of Reassurance Behind Super Micro Price Target Cut
In its note, JPMorgan noted three key points that are driving the bearish investor sentiment for the firm. According to the bank, Super Micro's latest earnings report and the cloudy guidance indicate that the orders that were delayed in the previous quarter were not limited to a couple of customers and have been delayed beyond the current fiscal quarter as well.
"Customer push out of deployments in F3Q was not limited to one or two customers and represents an ongoing challenge about customers deciding between multiple platforms as well as datacenter readiness to accept shipments planned," notes JP Morgan as it reduces Super Micro's share price target to $35 from $36 and keeps a Neutral rating.
These two factors will drive the firm's pushed out revenues from its March quarter to "over multiple quarters," the bank adds. According to JPMorgan, declining GPU costs, particularly of NVIDIA's older Hopper GPUs, will also create headwinds for Super Micro.
The bank notes that lower cost GPUs could create a 100 basis point headwind on Super Micro's margins and could extend beyond it as well. Its analysis reveals that if Super Micro is unable to sell its Hopper inventory, then "there remains the potential for further risks" to the gross margin. NVIDIA is currently selling the Blackwell GPU lineup as its latest offering, and the dropping prices of older chips, such as Hopper, have also influenced the narrative of data center company CoreWeave, which went public earlier this year.
While JPMorgan believes that Super Micro has been able to "highlight leadership relative to time to market for latest technology based servers in the high growth AI servers market," it cautions that investors are nevertheless still concerned about the firm's ability to "forecast revenue ramp and margins as well as further credibility in relation to corporate governance." Super Micro spent most of 2024 battling reports of accounting improprieties, which eventually delayed its annual report filings with the SEC.
To assuage these worries, the bank outlines that Super Micro CFO discussing its special committee report and the firm outperforming its near-term guidance are key drivers that could prove to be share price catalysts.
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