Super Micro Computer (NASDAQ:SMCI) sits at a strategic spot in the AI landscape as a supplier of high-performance server solutions for data centers. The company designs modular, open-standard servers, storage systems, and GPU-accelerated platforms used to train and run AI workloads. With close partnerships across the chip industry, including Nvidia and AMD, Super Micro has pushed deeper into AI-optimized infrastructure such as rack-scale and liquid-cooled systems, positioning itself to benefit as enterprises and cloud providers continue to scale AI compute.
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But that aggressive push into AI-optimized infrastructure comes at a cost. Profitability is moving in the opposite direction, with gross margin sliding to 9.3% in the first quarter of fiscal 2026, down from 13.1% a year earlier, as cost pressures mount in the race to meet explosive AI demand.
Margin erosion wasn’t the only factor weighing on the stock. SMCI badly missed revenue expectations, posting $5 billion in sales, roughly $800 million short of what Wall Street had penciled in.
The company tried to soften the blow by explaining that design wins simply pushed sales into the following quarter, while also raising its full-year guidance to at least $36 billion.
The damage was done, however, and SMCI has been one of the biggest losers of the past month, tumbling 36% since the early-November earnings release. Could the falling price create an opportunity?
Not according to one investor, known by the pseudonym The Alpha Analyst, who does not believe that the recent correction is “reason to jump in.”
“While AI tailwinds and backlog support FY2026 sales guidance, SMCI’s position in a replaceable layer and customer concentration limit upside conviction,” explains the 5-star investor.
It is increasingly difficult for Alpha Analyst to get beyond the falling margins, despite the growing revenues. The investor points out that the competitive pressures are very real, as customers have other options at their disposal, such as Dell, Hewlett-Packard, or direct Nvidia ODM. This could keep margins in the 6% to 10% range, notes Alpha Analyst.
“Valuation outcomes for SMCI are overwhelmingly driven by where the gross margins settle and how long that takes,” adds Alpha Analyst.
Especially with all the AI bubble talk, the investor is looking for companies with a wide moat in order to safely take advantage of secular trends. Based on this logic, SMCI won’t be on Alpha Analyst’s holiday shopping list.
“SMCI continues to be relevant within the AI portfolio, but not compelling, even after corrections,” sums up the investor, who gives SMCI a Hold (i.e., Neutral) rating. (To watch The Alpha Analyst’s track record, click here)
That’s just about where Wall Street finds itself as well. With 5 Buys, 5 Holds, and 2 Sells, SMCI carries a consensus Hold (i.e., Neutral) rating. However, its 12-month average price target of $46.82 implies ~45% upside potential for the year ahead. (See SMCI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.