Is Super Micro Computer a Buy?
Key Points
Super Micro Computer was an early winner from the AI boom.
Investors seem to have moved past a DOJ investigation into the company.
While revenue growth is strong, margins at the company are narrow.
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Super Micro Computer (NASDAQ: SMCI) isn't a household name in AI stocks the way, say, Nvidia is, but it's one of the fastest-growing companies in AI.
The server-maker, which is known for specialized, liquid-cooled systems optimized for artificial intelligence, reported 93% revenue growth in its most recent quarter, and 78% revenue growth for fiscal 2026, which ended on June 30.
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Supermicro, as the company is often known, was an early winner in the AI boom. The stock jumped more than 1,000% in less than a year before peaking in March 2024. The stock gained interest from its rapid growth and its close partnership with Nvidia, but then started falling on concerns about its valuation and due to a follow-on offering of 2 million shares. The sell-off accelerated in April after a whistleblower accused the company of improper revenue practices.
After a tumultuous period, Supermicro now seems to have stabilized. Is the stock a buy? Let's take a closer look at both sides of the argument.
Image source: Getty Images.
Super Micro Computer: Bull vs. bear
The bull case for Supermicro seems fairly straightforward. The company is riding the AI boom, and seems to be in a good position to continue doing so as long as AI compute demand remains strong.
Additionally, the stock is cheap, trading at a price-to-earnings ratio of just 13, which seems to reflect doubt about the durability of its growth rate. The analyst consensus calls for revenue to grow 72% in fiscal 2027, but then slow to just 17% the following year. Supermicro has also differentiated itself in the server market in some ways. It benefits from getting early access to Nvidia chips, and it has its proprietary modular, customizable Building Block Solutions architecture. It's also known for advanced technologies like liquid cooling and rack-scale integration, which are valuable for serving data centers.
While its revenue growth and valuation are attractive, the company operates with narrow margins that indicate a lack of a competitive advantage. In fiscal 2026, its gross margin was just 10.8%. The company is essentially buying GPUs and repackaging them into servers, despite its differentiated qualities above.
Additionally, a DOJ probe that began in late 2024 culminated in charging insiders earlier this year in a $2.5 billion illegal smuggling scheme to route AI servers to China. Investors seem to have moved past this as the stock has traded mostly sideways since the news broke in 2024, and the company was not named as a defendant. Still, one episode of malfeasance raises the risk of another.
Is Supermicro a buy?
Given its valuation and revenue growth, there may be some short-term upside to Supermicro, but I think there are better AI stocks available, including Nvidia, which is growing just as fast and trades at a reasonable valuation.
Ultimately, Supermicro doesn't seem to have a significant competitive advantage and is beholden to growth in AI. Meanwhile, the DOJ case against the company casts a cloud over it and at least partly explains why the stock is cheap. There are better options in the AI sector.
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Jeremy Bowman has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
