Shares of Super Micro Computer fell approximately 2% during Monday's regular trading session, closing near $33.68 after moving between $32.68 and $34.34. In contrast, chipmaker Nvidia advanced about 3%, while peers Hewlett Packard Enterprise posted gains and Dell traded flat.
Margin Compression Overshadows Growth
The dip highlights a persistent challenge for Super Micro: robust demand for AI servers is being offset by thin profitability per unit. The company's latest quarterly filing revealed a sharp decline in gross margin, which dropped to 6.3% from 11.8% a year earlier. This squeeze was attributed to a $142 million increase in tariff costs, higher inventory write-downs, and competitive pricing aimed at gaining market share.
Additionally, the company disclosed material weaknesses in its internal control over financial reporting, noting it is implementing a remediation plan. This raises the risk of potential accounting errors.
Strong Demand Amid Cost Pressures
Despite margin concerns, the demand narrative remains intact. Super Micro reported fiscal second-quarter net sales of $12.7 billion and maintained an ambitious full-year revenue target of at least $40.0 billion for fiscal 2026. CEO Charles Liang emphasized the company is "scaling rapidly to support large AI and enterprise deployments." Analysts, such as Emarketer's Gadjo Sevilla, acknowledge Super Micro's critical role as an integrator for major cloud and AI customers.
However, the market's reaction signals that investors are looking for clearer evidence that the company can manage shipping and pricing without further eroding profitability. Key risks include sustained elevated tariff and expedited shipping expenses, potential order slowdowns from hyperscale customers, and intensifying competition from rivals like Dell and Hewlett Packard Enterprise in the AI server space.
Investors are now looking ahead to the company's April 15 annual shareholder meeting, with the record date set for February 17, for updates on margin recovery efforts and progress on internal control fixes.
