Super Micro Computer (SMCI) has had an action-packed two years. The stock skyrocketed by 730% between May 2023 and March 2024, only to crash by 85% by November 2024. Although shares have since doubled, the company has struggled to maintain momentum. Despite a 1,323% increase over the past three years and 84% year-to-date, many analysts predict a challenging 2025 for the company.
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If you wish to read more in-depth about SMCI’s standings, I recommend reading what our analyst at Tipranks, Oliver Rodzianko, has written about the company.
Big Tech Shifting Away and Intense Competition
The AI boom has driven SMCI’s growth, with strong demand for its products in 2024 leading to a 110% revenue surge. However, major players such as Amazon (AMZN), Google (GOOGL), and Microsoft (MSFT) are shifting away from traditional server manufacturers like SMCI, choosing instead to adopt custom-built solutions. This change presents a considerable threat to SMCI’s prospects.
The company also faces growing competition from firms like Dell (DELL), which is rapidly expanding in the AI space. Additionally, SMCI has struggled with quality and service issues, losing key clients such as CoreWeave and Tesla (TSLA). Meanwhile, companies like Nvidia (NVDA), ASML (ASML), and AMD (AMD) are more attractive due to their solid growth and market dominance, and none of the compliance issues SMCI is going through.
Nonetheless, SMCI’s future depends on achieving its ambitious targets, such as the $40 billion revenue goal for FY2026. Missing these targets could lead to a major pullback. Some investors are still betting on SMCI due to its more reasonable valuation, with its P/E ratio now around 25, compared to over 80 at its 2024 peak. However, growth projections have slowed, with future revenue expected to rise by just 67% compared to last year’s 110%.
The Big Short (Squeeze)
On the bright side (depending on where you stand), short sellers lost over $2.2 billion on SMCI after a short squeeze, which took the stock 110% upwards in February. Short squeezes are where investors are forced to buy back stocks they shorted, contributing to the price spikes. However, if SMCI does not address its auditory headache, the stock will continue its volatile trend, and the short sellers will have their day. Ultimately, while SMCI’s growth potential remains, the risks involved in investing in the company are considerable, especially with increasing competition and market uncertainty.
Is SMCI a Buy or a Sell?
On Wall Street we find a cautious sentiment on SMCI with a Hold position. The average price target of SMCI stock is $37.17, suggesting a 33.71% downside potential.
