Super Micro Computer (NASDAQ:SMCI) was the poster child for data center startups in early 2024. Still, the momentum faded away just as quickly as it came, and things became even worse as it got embroiled in a drama about its books being potentially cooked. That led to its auditor resigning and a delay in the company filing its stock market reports.
Things got markedly better after Super Micro Computer posted its 10-Q and 10-K concurrently in February 2025. The stock climbed over 124% from trough to peak, and investors were once again hopeful that SMCI stock could deliver multibagger gains since it’s quite cheap compared to most other data center/AI plays.
Sadly, the inverse has happened. The stock is now down over 40% from its February prices as fears have gripped Wall Street about AI profitability (or the lack of it) and a slowdown in its progress.
Is Wall Street overreacting, and should you buy the dip? Let’s take a look.
February’s gains have been almost entirely wiped out, but events in February are important for figuring out whether or not you should buy the stock.
The company filed its overdue FY2024 annual report and its Q1/Q2 FY2025 annual reports in February and managed to clear up the murkiness surrounding a possible Nasdaq delisting. SMCI is no longer expected to be delisted from the Nasdaq. It also found a new auditor, “BDO,” and the company reshuffled some of its top executives.
Q2 FY2025 preliminary results came in with revenue growing 54.9% year-over-year to $5.7 billion as AI server demand grew, though non-GAAP gross margins dipped to 11.9%. However, revenue guidance was revised down to $23.5-25 billion from $26 billion. All things considered, this was quite solid since many expected that the company’s books were completely cooked.
It also raised $700 million via senior notes for AI expansion and reiterated an FY2026 revenue goal of $40 billion. Naturally, shares rallied.
SMCI stock trades at a remarkably cheap valuation compared to other businesses in its industry. But despite it avoiding the worst-case scenario of a Nasdaq delisting and fabricated reports, the rally didn't stick around.
SVP George Kao sold 71,720 shares ($3.6 million), and CEO Charles Liang offloaded 46,293 shares ($2.3 million) on February 26. Having said that, the real bad news is coming from outside the company. The data center industry is expected to go through growing pains post-DeepSeek, and recent earnings reports from other companies have reinforced that idea, especially after Microsoft (NASDAQ:MSFT) canceled some data center contracts.
There is nothing significantly wrong with Super Micro Computer’s business, but bears fear AI narrative will fail in the long run. Such a scenario would definitely drag down the company’s stock as growth turns negative. That hasn’t happened yet, but paying 14 times forward earnings for SMCI even after it cleared up its earnings reports prices that in already.
Sales growth and earnings are expected to slow in the coming years, but that’s the case for most AI plays. The difference is you’re paying a lot less for SMCI.
Buying the stock seems worth it since it is already been battered quite a lot. Macro fears could take it down more, but it’s hard to imagine SMCI declining much from here. If you focus on the numbers, this is a great business.
The consensus price target of $61.87 implies 71.52% upside from here.
