On Wednesday, Barclays (LON:BARC) maintained its Equalweight rating on Super Micro Computer (NASDAQ:SMCI) but lowered the price target to $25 from $42. The revision reflects rising concerns over the company's ability to meet Nasdaq's listing requirements. Super Micro Computer is in the process of selecting a new auditor and is expected to submit a plan to Nasdaq by November 16, 2024, to regain compliance with the exchange's listing rules.
If Super Micro Computer's plan is accepted, the company could be granted an extension until February 25, 2025, to file its overdue 10-K form. The analyst from Barclays highlighted the increasing risk of the company failing to meet Nasdaq's listing criteria. Additionally, the potential removal of Super Micro Computer from indexes, with the next S&P 500 rebalancing approaching in early December, could further pressure the stock.
The company's recent performance also contributed to the lowered price target, with a revenue miss reported for September and a guided decrease for December. This may suggest market share losses due to customer orders being redirected, possibly owing to the nearing end of the Hopper product cycle. Industry checks indicate a shift from Hopper to Blackwell orders, with a decline in Hopper GPU pricing.
Barclays' analysis anticipates flat to declining revenues for Super Micro Computer in the second half of fiscal year 2025 as GB200 orders start to be delivered to cloud service providers. This could result in a temporary revenue gap for the March and June quarters of 2025. The firm also expects a slower ramp-up in gross margins for the latter half of fiscal year 2025, ending with a 13% rate for the full year, due to competitive pricing pressures.
The revised forward estimates by Barclays take into account the anticipated market share and gross margin challenges for Super Micro Computer's GB200 product. The firm predicts a 5-10% market share for GB200 racks, compared to a 15% share for Hopper servers. The price target of $25 is based on a 7x multiple of the projected fiscal year 2026 earnings per share of $3.57, a decrease from the previous estimate of $4.15, reflecting the current challenges and uncertainties faced by the company.
In other recent news, Super Micro Computer experienced a downgrade from Buy to Hold by Argus due to significant accounting concerns and the loss of a key accounting partner, Ernst & Young LLP (EY). Goldman Sachs (NYSE:GS) also revised its price target on Super Micro's shares, following a lower-than-expected revenue in the company's preliminary results for Q1 of fiscal year 2025 and its Q2 forecast.
The company reported preliminary revenues between $5.9 and $6.0 billion, missing estimates. Despite these challenges, Super Micro confirmed that its Nvidia (NASDAQ:NVDA) GPU allocation remains unchanged.
Looking ahead, the company's revenue outlook for Q2 of fiscal year 2025 is projected to be between $5.5 and $6.1 billion. Amid these developments, an independent Special Committee found no evidence of fraud or misconduct by the company's management or Board of Directors.
Simultaneously, China's Semiconductor Manufacturing International Corp (SMIC) and Huawei are under investigation by the U.S. Commerce Department for potential violations of U.S. export control laws. The investigations were triggered by concerns raised by Michael McCaul, chair of the House Foreign Affairs Committee.
InvestingPro Insights
Recent InvestingPro data provides additional context to Barclays' analysis of Super Micro Computer (NASDAQ:SMCI). Despite the challenges highlighted in the article, SMCI's financial metrics present a mixed picture. The company's P/E ratio stands at 12.41, which is relatively low considering its revenue growth of 109.77% over the last twelve months. This growth significantly outpaces the industry average, potentially indicating strong market demand for SMCI's products.
However, aligning with Barclays' concerns, InvestingPro Tips point out that SMCI is "quickly burning through cash" and "suffers from weak gross profit margins." The latter is reflected in the company's gross profit margin of 14.13% for the last twelve months, which supports Barclays' projection of a 13% gross margin rate for the full fiscal year 2025.
The stock's recent performance has been challenging, with InvestingPro data showing a 32.82% decline over the past month and a substantial 66.64% drop over the last six months. This aligns with the article's discussion of potential market share losses and the anticipated shift from Hopper to Blackwell orders.
For investors seeking a more comprehensive analysis, InvestingPro offers 19 additional tips for SMCI, providing a deeper understanding of the company's financial health and market position.
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