Why Shares of Super Micro Computer Stock Fell 29.6% Last Month

Key Points

• Super Micro Computer's revenue may barely grow this quarter.

• The company's profits are beginning to fall as AI spending slows down.

• The stock's price-to-earnings ratio looks cheap, but this is a risky investment.

• 10 stocks we like better than Super Micro Computer ›

Shares of Super Micro Computer (NASDAQ: SMCI) fell 29.6% last month, according to data from S&P Global Market Intelligence. The artificial intelligence (AI) data center builder is still growing but posted weak guidance for the current fiscal quarter, while the market is discounting whether the company can achieve its ambitious full-year guidance.

Up over 1,000% in the last five years but flat in the last year, Super Micro Computer (Supermicro for short) is emblematic of the current slowdown in enthusiasm around the AI infrastructure boom.

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Here's why Supermicro stock slipped last month.

Slowing revenue growth, unrealistic guidance

Last month, the compay reported its fourth-quarter results for the three months ending in June. Revenue was $5.8 billion in the period, up 7.4% year over year. This is a big slowdown from its recent blistering growth. What's more, net income fell from $297 million a year ago to $195 million in the fourth quarter.

Slowing growth and margin compression are two reasons the stock slipped last quarter. However, what may have hurt the company the most is its guidance for $6 billion to $7 billion in revenue for the current quarter, ending in September. If the low end of this guidance is hit, the company will have flat year-over-year revenue compared to 2024.

Management says it will hit $33 billion in sales this fiscal year, but that would be a big shift from its $22 billion in revenue generated last fiscal year and a huge acceleration from its first-quarter guidance. Wall Street was skeptical of this guidance, which is why the stock has fallen after the report was released.

Image source: Getty Images.

Supermicro's risky proposition

At today's stock price, Supermicro has a price-to-earnings ratio of 24. This may seem like a cheap stock to play the growth of AI infrastructure spending, but it doesn't tell the whole story.

Today, it has slim gross margins below 10% due to the fact it assembles and repackages equipment but doesn't make data center technology like semiconductors itself. Slim gross margins could start sending profits in the wrong direction quickly if the data center spending market turns the wrong way.

Net income has already started to move in the wrong direction. For this reason, Super Micro Computer remains a highly risky stock that may not hit its current fiscal-year revenue guidance.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.