Super Micro Computer (SMCI) stock may still have its fans, but Wall Street’s tone is shifting fast. Bank of America (BAC) just resumed coverage with an Underperform rating and a stark message: margins are slipping, competition is rising, and the next few years will be a test of survival, not dominance.
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Shares inched up 1.2% to $50.63, but BofA’s price target of $35 implies sharp downside. Analyst Ruplu Bhattacharya offered a sober take on the company’s prospects, calling Super Micro a “show-me story” in an increasingly crowded AI server market.
SMCI Is Stacking Revenue While Margins Crack
The problem isn’t growth—Super Micro still commands scale and speed. But margins are bleeding. The company’s gross margin has already slipped from 18% in fiscal 2023 to 13.9% in 2024. BofA expects it to fall further to 11.3% next year and just 9.4% by 2027.
That pressure comes from rising costs, tariff uncertainty, and customer demands. CFO David Weigand flagged the issue on the May earnings call, pointing to the transition from Nvidia (NVDA) Hopper to Blackwell GPUs as a key risk.
Cooling Edge Becomes Commodity
Super Micro’s once-differentiating feature—liquid cooling—is no longer unique. Hewlett Packard Enterprise (HPE) has rolled out its own AI-optimized, liquid-cooled systems and claims five decades of experience. Dell (DELL) is fast closing in too, having secured new deals with xAI and CoreWeave, both of which were historically Super Micro clients.
BofA expects Dell to match Super Micro’s AI server market share in 2025 and outpace it in the years ahead. Liquid cooling is becoming table stakes. BofA warns that vendors may soon offer it free just to close deals.
Legal Clouds Still Linger
Super Micro is also navigating legal and regulatory headwinds. The company narrowly avoided Nasdaq delisting earlier this year but remains under investigation by the U.S. Department of Justice following short-seller allegations from 2024. No charges have been filed, but the shadow looms.
Auditor BDO USA has also cited material weaknesses in internal financial controls—raising more red flags as the company tries to regain investor confidence.
Super Micro’s growth narrative still holds potential, but the competitive and regulatory backdrop has shifted. With components in short supply and big players like Dell and HPE rapidly scaling, Wall Street wants more than ambition—it wants proof.
For now, BofA sees too many questions and not enough clarity. In this cycle, that’s a problem no server maker can afford.
Is SMCI a Good Stock to Buy?
According to TipRanks data, Super Micro Computer (SMCI) currently holds a “Moderate Buy” consensus based on 14 analyst ratings over the past three months. Of those, six analysts rate the stock a Buy, six say Hold, and two recommend Sell.
The average 12-month SMCI price target stands at $40.92, implying an 18.88% downside from the most recent trading price of $50.45.
