$SUPER MICRO COMPUTER INC(SMCI)$ will be reporting its fiscal Q2 2025 results on 11 Feb after market close.
We saw SMCI shares surged last Friday (07 Feb) which extend gains ahead of its earnings update. It was up more than 5% in late Friday session, this helped it to become one of the best-performing stocks in S&P 50 despite all eleven S&P 500 sectors are in the red.
SMCI comment on 05 Feb (Wednesday) that it is ramping to “full production availability” of its artificial intelligence data center solutions platform, which is “accelerated by the $NVIDIA(NVDA)$ Blackwell platform. But we will need to see more details.
The consensus EPS forecast is estimated to come in at $0.61 higher than the same period last year.
Super Micro Computer (SMCI) Last Neutral Earnings Call Give 30.97% Change Since
We saw SMCI have a significant 30.97% change since the neutral earnings call sentiment on 05 Nov 2024. The earnings call reflected strong growth driven by AI demand and improved margins, but was tempered by revenue coming in at the lower end of the forecast, auditor-related uncertainties, and lower margin guidance for the next quarter.
The only things investors should be looking out for is the regulatory disclosures and also accounting practices,
Super Micro Computer (SMCI) Guidance Surrounding Nvidia Partnership
In the Super Micro Computer, Inc. earnings call for Q1 FY 2025, the company provided a detailed financial outlook and guidance despite recent challenges with auditor resignation and delayed 10-K filings. Preliminary net revenue for the quarter was reported between $5.9 billion and $6 billion, representing a 181% year-on-year increase, driven significantly by AI demand. Non-GAAP gross margin was approximately 13.3%, with an operating margin of about 9.9%. The company also reported non-GAAP net income of $483 million to $493 million and non-GAAP diluted earnings per share of $0.75 to $0.76.
The call highlighted strong revenue contributions from AI, accounting for over 70% of total revenues, and noted the completion of a major AI supercluster deployment. For Q2 FY 2025, the company expects net sales between $5.5 billion and $6.1 billion, with GAAP and non-GAAP gross margins expected to decline by 100 basis points due to customer and product mix.
The anticipated GAAP net income per diluted share is projected to be between $0.48 and $0.58, with non-GAAP net income per diluted share expected to be between $0.56 and $0.65. The company emphasized its strong relationship with NVIDIA, its strategic expansions in manufacturing capacities in Malaysia, and the expected continued growth in AI and data center solutions.
The estimated earnings per share is coming higher that what SMCI has mentioned for its anticipated GAAP net income per diluted share.
Fiscal Q2 2024 Might See Strong Revenue Growth Due To Blackwell
Preliminary fiscal Q1 net revenue was between $5.9 billion to $6 billion, marking an increase of 181% year-over-year. We could be seeing stronger revenue growth as the Blackwell integration project for Nvidia customers might help SMCI, so I am expecting SMCI to post a much higher than $6 billion for the net revenue.
SMCI growth would still be driven by AI demand as in the fiscal Q1 2025, AI contributed over 70% of revenues, with significant growth in the demand for direct liquid-cooled, rack-scale AI GPU platforms. This demand should continue for SMCI into fiscal Q2 2025 earnings and also into 2025 overall demand.
Margins Improvement Might Be Lower Due To Regulatory Expenses
In fiscal Q1 2025, non-GAAP gross margin improved to approximately 13.3%, up from 11.3% in the previous quarter, due to product and customer mix and enhanced manufacturing efficiencies, but we need to note that Q1 revenue came in at the lower end of the guidance, partly due to customers waiting for the new-generation GPU chips.
So how SMCI is going to improve the guidance for Q2 gross margins which is expected to decline by 100 basis points sequentially due to expected changes in customer and product mix.
Expenses spending due to independent auditor's resignation and subsequent delay in 10-K filing, as this have created uncertainties, although a special committee found no evidence of fraud.
SMCI Management of Its Inventory Levels To Watch
Completed deployment of the largest LLC AI supercluster with 100,000 NVIDIA GPUs, showcasing engineering and logistical prowess.
Q1 inventory levels were high at approximately $5 billion, reflecting preparation for anticipated growth, which ties up significant capital. Expansion of production facilities in Malaysia and Silicon Valley to increase capacity, with plans for further global expansion.
The question now is whether SMCI can manage to have enough demand to clear the high Q1 inventory levels as now investors does have some concerns over their accounting uncertainities.
I would think we need to watch closely on the earnings report more on what their numbers actually mean, and whether the demand is true for Blackwell customers as well.
Super Micro Computer (SMCI) Price Target
Based on 5 Wall Street analysts offering 12 month price targets for Super Micro Computer in the last 3 months. The average price target is $29.75 with a high forecast of $40.00 and a low forecast of $23.00. The average price target represents a -18.00% change from the last price of $36.28.
I think SMCI could go higher towards $40 if the AI demand came in as expected but what might concern investors would be the numbers of how they spend money and also expenses to keep the high inventory, will these be reflected in their earnings report?
Technical Analysis - Exponential Moving Average (EMA)
If we looked at how SMCI have been trading recently, it has shown some good strength, the bulls have been trying to create a daily uptrend as SMCI has shown that if it can clear the 26-EMA, we could be seeing a bullish reversal, and the current trade on last Friday (07 Feb) seem to suggest that an upside movement is in motion ahead of its earnings on Tuesday after market close. I will be watching how investors would be responding to this trend.
If we looked at how SMCI have been doing in the weekly period, it has been trading the 200-day period, but we are still not seeing much sentiment from the investors, if we looked at the RSI, it is still in a wait and see mode.
So I think we need to watch how the market would be seeing SMCI on Monday (10 Feb) before looking to see if we can take a position.
Summary
I think while we are expecting SMCI to post a stronger revenue due to AI demand, but expenses from its regulatory challenges and also high inventory storage, this might increase the expenses. I will be watching out for these numbers before deciding whether to take a position.
Appreciate if you could share your thoughts in the comment section whether you think SMCI could provide an earnings surprise if they are able to manage their high inventory well with increased demand.
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
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