Super Micro Expands AI Server Leadership: Can Margins Grow Above 15%?

Super Micro Computer, Inc. SMCI has become a major player in the AI server market, delivering systems built on the latest NVIDIA and AMD platforms. The company’s ability to bring new products to market quickly has helped it win business with cloud providers and large enterprises, which are investing heavily in expanding AI infrastructure.

This leadership in AI server and storage space has fueled strong top-line growth. In fiscal 2025, Super Micro’s revenues increased approximately 47% year over year to $22 billion. However, the company’s profitability has not kept pace with top-line growth. Fiscal 2025 non-GAAP gross margins contracted 270 basis points to 11.2%, significantly below management’s long-term goal of 15-17%.

Super Micro is adopting a new strategy that can improve its margin profile. The company is focusing on complete solutions, such as its Data Center Building Block Solutions (“DCBBS”), an integrated system that includes servers, storage, cooling and power solutions. By moving away from selling only hardware, SMCI intends to capture higher-value contracts that can eventually improve margins.

Super Micro is also expanding into enterprise, Internet of Things (IoT) and telecom markets to diversify its business across new areas. These segments often require customized solutions and services, which typically carry better margins than standard servers. Additionally, SMCI is investing in advanced liquid cooling technology to cut energy costs for customers, strengthening its market position.

If the adoption of Super Micro’s solutions continues to grow, the company could see margin trends higher in fiscal 2026 and beyond, and help it attain the long-term non-GAAP gross margin target of more than 15%.

How Competitors Fare Against Super Micro Computer

Super Micro Computer competes with Dell Technologies DELL and Hewlett Packard Enterprise HPE in the AI server market.

Dell Technologies is a major supplier of servers and storage systems, with a broad customer base across enterprises and cloud providers. Its scale, established distribution and service offerings give it an edge in winning large contracts. Though Dell Technologies has not grown as quickly as SMCI in AI-specific systems, its ability to bundle hardware with services makes it a strong rival.

Hewlett Packard Enterprise is also expanding aggressively into AI and high-performance computing. Its GreenLake platform provides customers with flexible, cloud-like consumption models, which can be attractive to enterprises. Hewlett Packard Enterprise’s focus on hybrid cloud and AI workloads positions it as a direct competitor in areas where SMCI is seeking growth through its DCBBS strategy.

SMCI’s Price Performance, Valuation and Estimates

Shares of Super Micro Computer have risen around 45.6% year to date compared with the Zacks Computer – Storage Devices industry’s gain of 12.9%.

From a valuation standpoint, SMCI trades at a forward price-to-earnings ratio of 16.7, lower than the industry’s average of 17.82.

The Zacks Consensus Estimate for Super Micro Computer’s fiscal 2026 and 2027 earnings implies a year-over-year increase of approximately 23.3% and 29.2%, respectively. Meanwhile, estimates for fiscal 2026 and 2027 earnings have been revised downward in the past 30 days.

Super Micro Computer currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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