Following a challenging second half of 2024, investors have expressed a positive outlook on Super Micro Computer, Inc. SMCI, with its shares gaining 97% this year and outpacing NVIDIA Corporation’s NVDA gain of 31.6%. So, can Supermicro, a manufacturer of data center components, become the next NVIDIA, and is it a worthwhile investment? Let’s explore –-
Behind SMCI’s Gains This Year and Growth Potential
Supermicro’s shares surged 10% on Monday after Digi Power X announced a provisional patent for its ARMS 200 modular data center, with SMCI as its exclusive server supplier. The choice of Supermicro indicates that the company may be leveraging advanced, high-value technology.
A short-seller tarnished Supermicro’s reputation last year, but the stock rebounded to finish the first half of 2025 with a 60.8% increase. This rebound occurred after the company’s new auditor, BDO, reviewed the last three years of financial transactions and confirmed that Supermicro’s financial statements are fair in all material respects. The company was cleared of all allegations of fraud.
Supermicro’s shares gained further after the firm announced a $20 billion deal with Saudi Arabian data center operator DataVolt. This deal is part of the Trump administration’s strategic partnerships with Saudi Arabia.
In the March quarter, Supermicro’s revenue growth fell short of market expectations, possibly due to delays in shipments of NVIDIA’s Blackwell chips. However, no delays are expected for the June quarter, which could boost Supermicro’s revenues and positively influence its share price. Remember, most of the graphics processing units (GPUs) used in Supermicro’s systems are NVIDIA chips.
Could SMCI Be the Next NVIDIA?
Supermicro’s gains this year have sparked questions about whether it can replicate NVIDIA’s future success. Supermicro’s business, which involves integrating several third-party components, is much easier to commoditize compared to NVIDIA’s operations. However, developers prefer NVIDIA’s CUDA software and artificial intelligence (AI) GPUs over competitors like Intel Corporation INTC and Advanced Micro Devices, Inc. AMD.
NVIDIA’s products are distinctive and superior to those of its rivals, but some competitors also offer Supermicro’s direct liquid cooling method. Additionally, NVIDIA controls over 80% of the AI GPU market, boosting its pricing power. In contrast, Supermicro has only an 8% share in the AI server market, making it premature to crown Supermicro as the next NVIDIA (read more: Is Rigetti the Next NVIDIA, and Should You Buy the Stock?).
Should You Buy SMCI Stock Now?
Despite recent gains, investors should remain cautious. Major technology vendors are providing intense competition to Supermicro, which is putting pressure on the company’s margins. Supermicro’s non-GAAP gross margin for the fiscal 2025 third quarter was 9.7%, down from 11.8% in the previous quarter and 15.5% in the same quarter last year.
Supermicro also has a debt-to-equity ratio of 38.1%, higher than the Computer- Storage Devices industry average of 32.5%, indicating greater financial risk and increased vulnerability to economic downturns. Nonetheless, the company’s growth may be impacted by trade-related uncertainties.
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Supermicro, currently, has a Zacks Rank #5 (Strong Sell), and the Zacks Consensus Estimate of $2.07 for SMCI’s earnings per share (EPS) is down by 39.7% from a year ago.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
