Super Micro may have to dump NVIDIA Blackwell to survive – analyst

Investing.com -- Super Micro Computer Inc (NASDAQ:SMCI) has been under intense pressure over the last few months related to a short seller report, delayed financial filings, the risk of delisting, and last week’s auditor resignation. Amid the upheaval, Lynx Equity Strategies analyst KC Rajkumar now thinks the company may have no choice but to remove the more expensive NVIDIA (NASDAQ:NVDA) Blackwell program off its shipment pipeline.

Rajkumar highlights Super Micro’s inventory on hand surged to $4.4 billion exiting FY2024, more than triple year-ago levels, while revenue only doubled. This directly impacted margins, profitability, and cash flow, leaving the company in a vulnerable position into the auditor's resignation.  

 "The abrupt hit to inventory arising from high cost of liquid cooled kits for H100/H200 directly impacted margins and profitability," Rajkumar commented. “Cash flow from operations for Fy24 was reported negative $2.5bn vs. positive $663mn a year ago. Over the course of Fy24 the company raised ~$1.6bn in a convertible issue; a secondary offering raised $1.75bn in gross proceeds. And yet the Company exited the Fy merely neutral on a net cash basis.”

Now, the analyst said to ensure long-term survivability, the company may have no choice but to remove the even more expensive Blackwell program from its shipment pipeline. Doing so would also mean lowering FY2024 revenue guidance, the analyst said.

"Recall that the Fy25 revenue guidance of $26bn-$30bn includes revenue from Blackwell in 2FH," the analyst highlighted. "We think the Company’s weakened financial situation leaves it with few alternatives. Could this improve the trajectory of gross margin in the back half of the FY? It could. And that might turn out to be positive for the stock."

 "While we have no view into the specifics of the accounting problems triggering the Company’s external auditors to resign, we wonder if management’s response to abrupt changes to the cash flow and balance sheet items may have had something to do with it," the analyst further ponders.

Overall, the analyst believes SMCI faces major challenges, starting with fixing its unsustainable inventory and profit issues. To stabilize, it may need to scale back its Blackwell goals due to limited funding and tough financials. This would help SMCI focus on the H100 market and ensure long-term stability.

Super Micro is expected to give a first-quarter 2025 business update after the close today, and investors hope to learn more about the company's issues and solutions to address them.