Why Supermicro Still Isn't A Buy Despite Its Sharp Post-Earnings Dip

Key Points

• Supermicro stock dropped following a muted Q4, signaling consecutive quarters of slowing revenue and trimmed outlooks.

• Once a market darling after a huge rally and S&P 500 inclusion, Supermicro’s momentum has cooled despite its leading AI-server position.

• Rising competition and shrinking profit margins cloud the company’s ability to fully capitalize on big-tech AI spending.

• 10 stocks we like better than Super Micro Computer ›

Shares of Super Micro Computer (NASDAQ: SMCI), also known as Supermicro, have fallen 20% since the company's August 5, 2025, Q4 earnings report, which offered only mild results for investors.

However, it wasn't that long ago when Supermicro was the hottest stock in the market, and not just in artificial intelligence (AI). Shares more than quadrupled in three months, and the rally helped secure Supermicro a spot in the S&P 500 (SNPINDEX: ^GSPC) on March 18, 2024. However, the stock is down by more than 50% since getting added to the S&P 500.

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Despite the stock's volatility and drama over the past two years, it's still up by more than 50% year to date. Supermicro has some of the best AI servers that have attracted the largest chipmakers as long-term customers.

It has viable catalysts for bullish investors to consider, but this dip may have more to it before Supermicro rebounds.

Image source: Getty Images.

Overpromise, underdeliver

Some investors can excuse companies that report low revenue growth rates but promise better results on the horizon. However, that wasn't the case for Supermicro. The AI giant has reported back-to-back quarters of uninspiring growth in an industry that recently contributed more U.S. economic growth than consumer spending.

In Q4, the company posted 7.4% year-over-year growth, and Supermicro only delivered 19.5% year-over-year revenue growth in Q3 FY25, which fell below expectations. However, the company has reduced guidance in recent quarters, and it's part of a growing trend where the company overpromises and underdelivers.

Supermicro used Q3 FY25 to reduce its fiscal 2025 revenue guidance from a range of $23.5 billion to $25 billion to a range of $21.8 billion to $22.6 billion. The AI company barely hit its reduced guidance, coming in with $22 billion in fiscal 2025 revenue. It gets even worse when you consider Supermicro lowered its guidance in Q2 FY25 as well.

Leadership expects to deliver $33 billion in net sales in fiscal 2026, but there's one problem: The same team promised it would generate $40 billion in FY26 net sales earlier this year. That's a 17.5% drop in revenue guidance, and that's assuming a company that has regularly broken promises manages to deliver this time.

It's hard to give Supermicro's executives the benefit of the doubt after falling into a pattern of setting ambitious revenue targets and then trimming them each quarter. It especially doesn't help, given that the AI server giant was almost delisted from the Nasdaq this year due to filing issues. The company avoided delisting at the last second, but its revenue and net income growth rates have not been the same since the accounting fiasco was brought to light.

Competition is rising

The rapid growth of artificial intelligence and multiyear AI spending plans from tech giants has created a frenzy in the industry. Supermicro has enjoyed a strong lead, but its competition is catching up. Dell's AI server backlog exceeded $14.4 billion at the end of fiscal 2025.

Several big tech companies of yesteryear are also getting back into the spotlight. Cisco and IBM have been gaining market share with their AI servers.

Rising competition has put a big dent in the company's growth rates and projections. Although big tech companies have plenty of money to spend, more competition will put more pressure on Supermicro's profit margins.

Investors have already seen Supermicro's margins shrink in recent quarters. Any changes to this trend seem unlikely in the short term. Low profit margins and rising competition are two long-term headwinds that can keep Supermicro stock in its current funk.

Being an AI stock isn't enough to justify Supermicro stock at current levels

The saving grace for Supermicro is that it's a key player in the AI industry. Big spending from big tech means it's hard to count out any AI stock, especially companies like Supermicro that provide important pieces of AI infrastructure.

The rising AI tide lifts all boats, but that same tide lifts some boats more than others. Supermicro's leadership has a history of making grand promises, only to fall substantially short. Investors can find plenty of better AI stocks in this scorching-hot market.

Most stocks tied to artificial intelligence in some way stand to gain from big tech's spending. A 7.4% year-over-year revenue growth rate is not desirable in this industry.

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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems and International Business Machines. The Motley Fool has a disclosure policy.